LIBRARY 

OF  THE 

University  of  California. 


Class 


\i 


Digitized  by  the  Internet  Archive 

in  2007  with  funding  from 

IVIicrosoft  Corporation 


http://www.archive.org/details/economiccausesofOOyounrich 


The  Economic  Causes 
of  Great  Fortunes 


BY 


Anna  Youngman,  Ph.  D. 


^     OF   THE 

UNIVERSITY 

OF 


NEW  YORK 

THE  BANKERS  PUBLISHING  CO. 
1909 


etwfcw^^ 


Copyrifirht  1909 

By  the  Bankers  PublithinK  Co. 

New  York 


CONTENTS. 


PAGE 

Chapter  I. — Introduction 1 

a.  Tlie  method  employed. 

h.  The  fortunes  selected  for  special  investigation, 

and  the  general  considerations  governing  such 

selection. 
c.  The  reasons  for  treating  the  fortunes  of  the  men 

of  to-day  from  the  standpoint  of  the  group, 

rather  than  from  that  of  the  individual. 

Chapter  II. — The  Fortune  of  John 
Jacob  Astor n7 

a.  The  fur-trade  and  foreign  shipping. 
h.  Investments  in  real  estate. 

Chapter  III. — The  Fortune  of  Jay 
Gould  -^5 

a.  Early  business  undertakings. 

h.  Operations  on  the  Gold  Exchange. 

c.  Speculation  in  the  stocks  of  the  Erie. 

d.  Investments  in  western  railroads. 

€.  The  Western  Union  Telegraph  Company  and  the 
Manhattan  Elevated  Railway. 

Chapter  IV. — Group  Fortunes:  The 
"Standard  Oil"  and  the  "Morgan" 
Men  100 

a.  The  origin  and  growth  of  the  "Standard  Oil" 

group. 
h.  The  rise  of  the  "Morgan"  group. 
c.  Probable  future  developments. 


194744 


PAGE 

Chapter  V. — Personal  and  Non-Personal 
Factors  Involved  in  Gain-getting.  ...  143 

a.  An  analysis  of  several  different  forms  of  gain- 
getting  (based  upon  the  specific  investigations 
that  have  been  undertaken). 

h.  The  gains  arising  in  the  course  of  the  general 
process  of  fortune  accumulation. 

1.  Non-personal  factors  conditioning  such  gain. 

2.  Personal  factors. 

c.  Criticism  directed  against  men  of  large  fortunes. 

1.  Its  character. 

(Failure  to  see  the  importance  of  the  non- 
personal  factors  conditioning  gain.) 

2.  Misplaced  condemnation. 

cc.  Large  scale  production. 
y.  Dishonesty. 

Chapter  VI. — The  Social  Service  Ren- 
dered BY  Owners  of  Great  Fortunes.  .170 

a.  Vagueness  of  the  concept  of  "social  service." 
h.  The   relation   of   "social   service"   to   individual 
gain.     (No  necessary  connection  between  the 
two — gain  may  be  made  at  the  expense  of  the 
community.) 

c.  The  futility  of  attempts  to  establish  a  relation 

between  the  degree  of  social  service  on  the  one 
hand,  and  both  the  size  of  the  reward  and  the 
amount  of  personal  activity  or  personal  abil- 
ity, on  the  other  hand. 

d.  The  "justification"  of  large  fortunes. 

(No  validity  in  attempts  to  "justify"  individual 
gain  on  theoretical  grounds.) 

e.  Social  expediency  and  large  fortunes. 


Off  THE 

UNIVERSITY 

OF 

CHAPTER   I. 

INTRODUCTION. 

AN  examination  of  the  causes  of  great  for- 
jlIl  tunes  may  be  undertaken  in  either  one  of 
two  ways.  The  analysis  may  be  ( 1 )  im- 
personally theoretical,  seeking  only  occasional 
corroboration  by  an  appeal  to  the  facts,  or  it  may 
be  based  (2)  upon  a  detailed  examination  of 
particular  fortunes,  conclusions  being  strictly 
deduced  from  a  consideration  of  the  facts  pre- 
sented. 

The  first  method  of  procedure  is  apt  to  give 
rise  to  grave  errors.  Mistakes  are  likely  to  occur 
frequently,  because  of  a  failure  to  recognize  the 
operation  of  certain  factors,  which,  in  the  absence 
of  a  detailed  study,  are  either  unknown  or  else 
appear  unworthy  of  notice.  Furthermore,  a 
theoretical  analysis  which  makes  an  appeal  to  the 
facts  for  confirmation,  instead  of  being  based,  in 
the  first  place,  upon  the  facts  furnished  by  a 
specific  inquiry,  presupposes  an  a  priori  judg- 
ment of  what  aspects  of  the  question  under  dis- 
cussion are  worthy  of  consideration.  This  judg- 
ment once  formed,  the  facts  are  apt  to  be  coerced, 
however  unconsciously,  to  support  the  position 
taken. 


2  GREAT    FORTUNES. 

The  second  method  of  investigation  is  con- 
ceived to  be  the  more  legitimate,  although  it  has 
some  obvious  limitations.  The  most  patent  ob- 
jection is,  of  course,  the  difficulty  of  disentan- 
gling from  a  heterogeneous  mass  of  material  onh^ 
such  facts  as  appear  to  be  of  a  causally  relevant 
nature.  There  is  always  a  danger  that  undue 
emphasis  may  be  given  to  circumstances,  which, 
although  important  in  the  single  instance,  have 
less  significance  for  the  general  question  bear- 
ing on  the  causes  of  the  growth  of  large  fortunes. 
However,  by  examining  in  detail  a  number  of 
fortunes  differing  in  respect  to  the  time  and  the 
manner  of  acquisition,  and  by  subsequently  sub- 
jecting them  to  an  unbiased  analysis,  any  gen- 
eral results  that  may  be  deduced  will  have  a 
degree  of  validity  unattainable  by  the  more  im- 
personal method.  In  brief,  a  basis  for  theorizing 
will  be  afforded,  which  will  be  sound,  just  in  so 
far  as  the  preceding  studies  have  been  accurate, 
exhaustive,  and  well  selected. 

It  must,  of  course,  be  conceded  that  the  ques- 
tion of  selection  calls  for  the  exercise  of  consid- 
erable judgment;  and  if  the  fortunes  examined 
do  not  represent  sufficiently  diverse  types  of  ac- 
tivity, then  the  facts  are  likely  to  support  a  dis- 
torted theoretical  conclusion  of  but  limited  ap- 
plication.   The  fortunes  which  have  been  selected 


INTRODUCTION.  3 

for  examination  in  the  following  study,  although 
few  in  number,  represent  a  highly  diversified 
range  of  economic  activity,  and  they  cover  a 
period  sufficiently  lengthy  to  include  the  several 
phases  of  commercial  and  industrial  development 
through  which  the  United  States  has  passed  since 
the  Revolutionary  War. 

The  fortune  of  John  Jacob  Astor,  gained  from 
trade  and  from  land-speculations,  is  the  typical 
American  fortune^  of^  the  pre-corporate  regime}  ^ 
The  Gould  fortune  is  a  product  of  the  period  thai 
intervened  between  the  close  of  Astor's  career 
and  the  distinctively  industrial  era  of  the  present 
day.  It  was  made  chiefly  by  means  of  specula-  ^ 
tive  investments  in  the  securities  of  various  rail- 
roads, and  it  is  one  of  a  number  of  fortunes  simz. 


Jlarly  acquired,  at  a  time  when  the  railroads  of 
the  country  were,  practically  the  only  great  pub- 
lic-service corporations  in  existence.  It  is  not 
only  representative  of  its  time,  however,  but  it 
offers  certain  unique  and  picturesque  features 
incident  to  "high  finance,"  which  call  for  explana- 
tion in  any  study  of  great  fortunes.  Finally, 
the  fortunes  of  the  "Standard  Oil"  and  the 
"Morgan"  men,  although  originating  generally 

iTo    be   sure,    Astor's    Fur   Company   was    incorporated,    but     j- 
merely  as  a  matter  of  form,  since  Astor  owned  the  business  en- 
tirely,   with    the    exception    of    a    few    shares    granted    to    his 
subordinates. 


4  GREAT    FORTUNES. 

at  an  earlier  period,  present  all  the  characteris- 
tics of  the  modern  situation,  in  which  industrial 
corporations  vie  with  the  railroads  in  their  im- 
portance for  purposes  of  speculation  and  of 
investment. 

In  the  days  of  John  Jacob  Astor,  the  growth 
of  a  great  fortune  couldlbe  studied  in  isolation, 
and  the  activities  of  its  owner  could  be  narrated 
almost  without  reference  to  the  existence  of  his 
contemporaries.  With  the  exception  of  certain 
subordinates  to  whom  he  granted  a  minor  inter- 
est, Astor  did  not  have  even  a  partner  in  his 
great  fur  company.  As  for  his  real-estate  in- 
vestments, he  would  have  been  exceedingly  loath 
to  share  with  another  the  immense  gains  which 
came  to  him  from  that  source.  But  even  in  the 
time  of  Jay  Gould  there  had  come  about  a 
change.  Gould,  jndividualist  though  he  was, 
made  his  fortune  under  a  corporate  regime,  and 
he  was  thereby  compelled  to  identify  himself 
more  or  less  with  those  interested  in  the  same 
^rporate  undertakings.  To  understand  fully 
the  activities  of  Gould,  one  must,  for  example, 
know  somewhat  of  the  career  of  James  Fisk ;  and 
for  a  complete  knowledge  of  Gould's  later  un- 
dertakings, it  is  essential  to  remember  that  he  was 
supported  by  a  small  coterie  of  men,  most  of 
whom  were  directors  of  the  Union  Pacific  at  the 


INTRODUCTION.  5 

time  of  his  entry  into  that  road.  However,  his 
interests  and  those  of  his  associates  were  confined 
almost  exclusively  to  one  field — railroads.  It  is 
not  necessary  to  seek  for  ramifications  of  his 
interests  int©  other  fields,  through  the  mediation 
of  these  lesser  members  of  the  group.  It  becomes 
possible,  therefore,  to  gauge  the  extent  of  his 
wealth  and  influence,  and  to  analyze  the  causes 
making  for  his  personal  gain,  by  a  simple  exam- 
ination of  his  individual  operations. 

But  of  late„y£ars  conditions  have  changed.  As 
a  result  of  the  interrelations  made  possible  under 
a  highly-developed  corporate  system  of  business 
enterprise,  the  man  of  great  fortune  has  come 
more  and  more  to  be  regarded  as  but  a. member 
•jQjLa  group  of  men  having  great  fortunes.  It  is 
less  tliaii"a  quarter  of  a  cetitury  since  the  idea  of 
a  group  activity  began  to  secure  recognition ;  but 
today  it  has  become  possible  to  speak  familiarly 
of  the  "Standard  Oil"  or  of  the  "Morgan"  men. 
More  than  that,  the  group  has  attained  such  im- 
portance that,  to  understand  the  nature  and 
sources  of  an  individual's  gain,  it  is  necessary  to 
undertake  an  examination  of  the  character  and 
the  activities  of  the  group  of  which  he  is  a  mem- 
ber. It  is  still  possible,  of  course,  to  trace  the 
history  of  the  way  in  which  Mr.  Rockefeller,  for 
example,  laid  the  foundation  of  his  fortune  in 


6  GREAT    FORTUNES. 

the  Standard  Oil  Company  (although  that  has 
been  done  ad  nauseam).  But  Mr.  Rockefeller's 
Standard  Oil  holdings  are  but  a  part  of  the  num- 
erous interests  in  which  he,  as  a  member  of  the 
so-called  "Standard  Oil"  group,  shares.  It  is, 
in  fact,  through  group  activity  that  he  and  many 
others,  who  are  counted  among  the  richest  men 
of  the  country,  are  today  enlarging  their  private 
fortunes,  and  the  group  should,  therefore,  re- 
ceive consideration  in  any  study  attempting  to 
explain  the  causes  of  the  accumulations  of  men 
of  great  fortune.  For  that  reason,  it  is  proposed 
to  treat  the  fortunes  of  the  men  of  today  from  the 
standpoint  of  the  group,  rather  than  that  of  the 
individual,  while  the  fortunes  of  John  Jacob 
Astor  and  Jay  Gould  will  be  used  to  illustrate 
the  individualistic  methods  of  acquisition. 


CHAPTER  II. 

THE  FORTUNE  OF  JOHN  JACOB 
ASTOR.^ 

I. 

TJiTHEN  John  Jacob  Astor  landed  in 
America  in  the  spring  of  1784,  he 
encountered  a  civihzation  industrially  unique 
and  wholly  alien  to  his  brief  experience. 
Witness  the  anecdote  that  is  told  concern- 
ing his  astonishment  at  being  able  to  se- 
cure a  position  unhampered  by  the  payments 
and  regulations  of  apprenticeship.^  The  lack 
of  social  restraints  upon  the  freedom  of  produc- 
tion and  exchange  seemed,  no  doubt,  peculiarly 
inviting  to  one  who  must  have  imbibed,  even  if 


iJohn  Jacob  Astor  was  born  in  Waldorf,  Germany,  in  1763,  J- 
the  son  of  a  butcher.  At  the  age  of  sixteen  or  seventeen  he  left  » 
home,  working  his  way  to  the  coast,  whence  he  took  ship  for 
Engand.  After  four  years  spent  in  London  with  a  firm  of  flute- 
and  piano-makers,  of  which  his  brother  was  a  member,  he  set 
sail  for  America,  having  accumulated  money  enough  to  pay  for  a 
passage  in  the  steerage  and  to  provide  himself  with  a  few  addi- 
tional pounds  sterling. 

For  incidents  of  his  early  life  cf.  James  Parton,  Life  of  Astor, 
New  York,  1865;  Washington  Irving,  Astoria;  J.  D.  McCabe, 
Great  Fortunes  and  How  They  Were  Made,  1871;  Hunt's  Mer- 
chants' Magazine,  Vol  XI,  p.  153;  W.  O.  Stoddard,  Men  of 
Achievement,  1901;  W.  W.  Astor,  Pall  Mall,  Vol.  XVIII. 

2Parton's  Life  of  Astor  (New  York),  1865. 


8  GREAT    FORTUNES. 

unconsciously,  old-world  ideas  of  privilege.  Add 
to  this  that  the  country  held  numberless  untested 
possibilities  of  wealth  development,  and  it  is  not 
hard  to  predicate  the  pecuniary  success  of  an 
individual  such  as  John  Jacob  Astor,  who  could 
boast  a  more  than  ordinary  amount  of  commer- 
cial astuteness. 

It  is  not  to  be  inferred,  however,  that  the 
country  was  in  all  respects  industrially  unex- 
ploited,  nor  that  the  fur  trade  and  foreign  ship- 
ping, the  fields  in  which  Astor  was  to  lay  the 
foundations  of  his  fortune,  were  absolutely  un- 
tried. Indeed,  the  fur-bearing  regions  of  the 
continent  had  been  tramped  over  long  ere  this  by 
adventurous  employees  of  the  early  French  com- 
panies, by  trained  agents  of  the  Hudson's  Bay 
Company,  and  by  resolute  traders  and  trappers 
who  were  independent  of  all  organized  ventures. 
Moreover,  before  the  war  of  the  Revolution,  the 
natural  products  of  the  colonies  had  given  rise 
to  a  lucrative  carrying-trade  which  showed  indi- 
cations of  a  speedy  revival  after  the  Peace  of 
Paris  under  the  direction  of  Boston  merchants 
of  considerable  wealth.^  But  after  all,  the  ex- 
ploitation of  these  two  fields  of  commercial  ac- 


sWeeden,  Economic  and  Social  History  of  New  England,  Vol. 
II,  p.  821;  cf.  also  MacPherson,  On  Commerce,  Vol.  IV,  pp.  57, 
lir,  195. 


JOHN   JACOB    ASTOR.  9 

tivity  was  only  in  its  initial  stages.  In  1784, 
New  York  was  as  yet  of  secondary  importance  as 
a  center  of  the  American  foreign  trade,  while 
the  condition  of  the  fur-trade  is  evidenced  by  the 
fact  that  the  western  part  of  New  York  state 
and  even  portions  of  Long  Island  were  still  pro- 
lific of  peltries. 

That  John  Jacob  Astor  at  the  age  of  twenty 
should  have  come  in  contact  with  a  loquacious 
countryman  who  impressed  upon  him  the  money- 
getting  possibilities  of  the  fur-trade,  was  a  piece 
of  rare  good  luck.^  The  elements  of  fortune — 
even  for  the  wholly  penniless — were  all  there, 
though  no  doubt  it  required  a  laudable  effort  of 
the  imagination  for  a  young  man  so  entirely  ig- 
norant of  the  conditions  prevailing  in  America 
to  appraise  them  at  their  full  value.  To  begin 
with,  the  fur-trader  required  only  a  minimum 
capital;  as  Astor's  German  acquaintance  told 
him,  with  a  basket  of  toys  or  even  cakes,  valuable 
furs  could  be  bought  on  the  wharves  and  in  the 
markets  of  New  York,  which  could  be  sold  with 
advantage  to  resident  merchants,  or,  if  sent  to 
London,  disposed  of  at  an  advance  of  400  or  500 
per  cent.^ 

4Cf.  references  previously  given  to  "Lives"  of  Astor. 

sParton,  Life  of  John  Jacob  Astor  (New  York,  1865).  Parton 
is  unreliable,  but  the  statement  seems  probable  in  the  light  of 
other  evidence  concerning  the  profits  of  the  fur-trade. 


10  GREAT    FORTUNES. 

Such  extraordinary  returns  are  the  natural 
/  result  of  trading  operations  carried  on  between 
-JH:wo  civilizations  having  entirely  different  stand- 
/  ards  of  value.  Both  civilizations  may  conceiv- 
ably profit  by  these  operations,  but  the  greater 
part  of  the  gain  is  very  likely  to  accrue  to  one 
of  them  at  the  expense  of  the  other.  In  the  case 
of  the  w^hite  men  and  the  Indians  of  North 
America,  the  gains  arising  from  commercial  in- 
tercourse were  confined  almost  exclusively  to  the 
former,  though,  it  must  be  confessed,  their  pecun- 
iary successes  were  often  attended  with  severe 
personal  hardship  and  occasional  loss  of  Hfe.  At 
its  inception  the  Indian  trade  was  but  slightly 
influenced  by  a  trade-morality  even  of  the  mild- 
est sort,  so  that  the  ignorance  of  the  Indian  com- 
bined with  his  susceptibility  to  drink  and  finery 
delivered  him  over  to  the  greater  or  less  cupidity 
of  the  white  man.  An  idea  may  be  had  of  the 
conditions  confronting  fur-traders  in  the  remote 
comparatively  unworked  regions  of  the  country 
by  consulting  some  of  the  schedules  preserved 
by  pioneers  in  the  field.^  It  is  quite  evident  from 
these  schedules  that  there  must  have  been  an 
opportunity  for  great  profits  in  such  exchanges. 

eAlexander  Henry,  who  began  his  career  as  a  fur-trader  in 
1760,  has  left  an  account  of  his  travels  and  adventures,  in  which 
he  has  embodied  a  list  of  the  prices  of  goods  bought  from  the 
Indians  at  Fort  des  Prairies: 


JOHN   JACOB   ASTOR.  11 

Indeed,  the  fact  is  patent,  even  though  various 
incidental  expenses  connected  with  obtaining  the 
skins  and  transporting  them  to  market  are  not 

A  gun 20  beaver  skins 

A  Stroud  blanket 10 

A  white  blanket 8 

An  ax  (1  lb.) 3 

^    pt.    gunpowder : . .  1 

10    balls 1 

The  principal  profits,  however,  he  says,  came  from  the  sale  of 
knives,  beads,  flints,  steels,  awls,  and  other  small  articles.  To- 
bacco, for  which  the  Indians  showed  a  decided  preference,  sold 
at  the  rate  of  one  foot  of  Spencer's  twist  (a  twist  of  black 
tobacco  about  an  inch  in  diameter)  for  each  beaver  skin,  while 
rum  was  dispensed  at  the  rate  of  two  beaver  skins  per  bottle. 
Penny  prints,  such  as  are  sold  to  children,  were  considered 
especially  valuable  as  talismans,  and  Henry  states  that  they 
were  an  exceedingly  fertile  source  of  profit,  although  he  gives  no 
exact  information  as  to  rates  of  exchange.  (Alexander  Henry, 
TraveU  and  Adventures  in  Canada  and  the  Indian  Territories, 
ed.  by  James  Bain  [new  ed.,  1901],  p.  320.)  Bain  thinks  Astor 
conducted  his  trade  in  furs  at  Montreal  under  Henry's  direction. 
Russell  gives  a  schedule  of  the  trade  of  the  Hudson's  Bay  Co. 
in  1788. 

A  common    musket 10  beaver  skins 

A  pound  of  powder 2 

4   pounds  of  shot 1 

A  hatchet    1 

6   knives     1 

A  pound  of  glass  beads 2 

A  cloth  coat 6 

A  petticoat    5 

A  pound  of  snufF 1 

Combs,  looking-glasses,  brandy,  and  other  articles  were  ex- 
changed in  proportion,  Russell  states  rather  indefinitely.  More- 
over, in  the  exchange  two  otter  skins  and  three  martens  were 
reckoned  the  equivalent  of  one  beaver  skin,  whereas  a  single  fine 
skin  of  either  otter  or  marten  was  worth  more  than  a  beaver. 
Bancroft,  History  of  the  Northwest  Coast,  Vol.  I,  p.  459,  quotes 
the  statements  of  Russell  made  in  his  History  of  America,  Vol. 
II,  p.  263. 


12  GREAT    FORTUNES. 

estimated,  while  the  prices  at  which  they  were 
eventually  sold  are  not  stated.  However,  some 
definite  testimony  on  this  head  is  afforded  by 
Alexander  Ross  who,  while  connected  with  the 
Astorian  venture,  spent  a  winter  in  the  interior 
(600  miles  from  the  mouth  of  the  Columbia  Riv- 
er) ,  ill  a  region  not  previously  invaded  by  trade. 
During  the  188  days  of  his  stay  he  procured 
1,550  beavers,  besides  other  peltries  estimated  to 
be  worth  £2,250  in  Canton,  which  averaged  the 
company  5%d.  each,  or  £35  sterling  in  all.  Ross 
says: 

So  anxious  were  llicy  [i.  e.,  the  Indians]  to  trade  and  so  fond 
of  tobacco  that  one  morning  before  breakfast  I  obtained  110 
skins  for  leaf  tobacco  at  the  rate  of  five  leaves  per  skin,  and  at 
last  when  I  had  but  one  yard  of  white  cotton  remaining  one  of 
the  chiefs  gave  me  29  prime  beaver  skins  for  it  J 

Enough  has  been  said,  perhaps,  to  illustrate 
the  enormous  profits  arising  out  of  such  transac- 
tions with  the  Indians,  although  it  must  be  re- 
membered that  losses  due  to  accidents  in  trans- 
port, Indian  uprisings,  and  other  unforeseen 
happenings  had  to  be  taken  into  account,  while 
the  salaries  of  subordinates,  and  the  mainte- 
nance of  trading-posts  were  items  of  large  ex- 
pense to  the  organized  companies. 

7 Alexander  Ross,  Adventures  of  the  First  Settlers  on  the 
Oregon  or  Columbia  River,  1810-13.  Reprint  by  Thwaites  of  the 
London  edition  of  1849,  p.  158;  Early  Western  Travels,  edited  by 
Ileuben  Gold  Thwaites,  Vol.  VII,  1904. 


JOHN   JACOB    ASTOR.  13 

This,  then,  was  the  trade  to  which  John  Jacob 
Astor  addressed  himself  upon  his  arrival  in 
America.  He  engaged  his  services  to  a  New 
York  dealer  who  bought  and  exported  peltries, 
and  soon  he  was  making  trips  to  Montreal  in  the 
interests  of  his  employer,  gathering  information 
as  to  the  possibilities  of  the  trade,  and  acquiring 
adroitness  in  dealing  with  the  natives.  The  ac- 
counts concerning  this  early  period  of  Astor's 
life  are  meager,  conflicting  in  details,  and  prone 
to  substitute  eulogy  for  facts.  But  it  would 
probably  be  safe  to  say  that  by  1786  or  there- 
abouts he  had  severed  his  connection  with  Mr. 
Bowne,  his  employer,  and  with  a  small  stock  in 
trade  had  established  an  independent  business. 
He  obtained  his  furs,  apparently,  not  only  from 
the  Indians  themselves,  but  from  white  trappers 
and  from  the  occupants  of  farm-houses  through- 
out New  York  state.^ 

The  actual  expenses  of  such  a  trade  were  of 
course  slight,  and  if  connections  could  but  be 
established  with  those  markets  where  furs  were 
in  greatest  demand,  profits  might  rise  to  many 
times  the  original  outlay.  That  John  Jacob 
Astor  should  have  thought  of  London  as  the 
goal  of  his  operations — the  market  in  which  he 

sParton,  Life  of  Astor;  also,  cf.  other  accounts  of  Astor's  li"? 
that  have  been  cited. 


14  GREAT    FORTUNES. 

could  take  advantage  of  the  largest  price  discrep- 
g  ancies — is  not  altogether  surprising,  especially 
since  the  merchants  of  Montreal  with  whom  he 
had  come  in  contact  all  shipped  their  furs  to 
London.®  Nevertheless,  the  energy  and  dispatch 
with  which  he  put  his  plans  into  execution  were 
indicative  of  a  quite  extraordinary  enterprise. 
Very  early  in  his  career, ^^  in  fact,  as  soon  as  he 
had  accumulated  a  sufficiently  large  stock  of  furs, 
and  had  saved  money  enough  to  pay  for  a  pas- 
sage in  the  steerage,  he  set  out  for  London  with 
<^the  purpose  of  forming  connections  there  which 
would  permit  him  to  avail  himself  of  the  high 
prices  of  a  European  center  of  distribution.  Evi- 
dently this  venture  was  successful  (though  no 
direct  information  on  the  subject  is  to  be  got) 
for  Astor's  profits  grew  steadily  until  by  1794^^ 
he  was  in  a  position  to  devolve  all  but  the  man- 
agerial and  financial  work  connected  with  liis  un- 
dertakings upon  subordinates.^^ 

^Indeed,  the  furs  obtained  in  Montreal  must  perforce  be 
!? hipped  to  London,  as  there  was  a  law  against  exporting  them 
from  British  possessions;  cf.  George  Bryce,  The  Remarkable 
History    of    the    Hudson's    Bay    Co.,    p.    192    (Toronto,    1900). 

10 As  to  the  exact  time  accounts  are  conflicting  and  extremely 
unreliable. 

11  In  1794  Jay's  Treaty  resulted  in  the  relinquishment  of  the 
trading-posts  held  by  the  British  within  the  territory  of  the  United 
States. 

i2"In  a  dozen  years  [he]  had  diverted  some  of  the  most 
profitable  markets  from  his  competitors  and  was  at  the  head  of 


JOHN    JACOB    ASTOR.  15 

About  this  time  he  bought  a  vessel  of  his  own 
in  which  to  ship  his  furs  to  London.  There,  it  is 
said,  he  heard  of  the  trade  of  the  East  India  Com- 
pany with  China,  and,  in  consequence,  in  1800 
sent  his  first  ship  to  Canton.  ^^  Whether  or  no 
he  had  to  go  so  far  afield  to  learn  the  lucrative 
nature  of  the  China  trade,  may  well  be  matter 
for  debate.  An  enterprising  merchant  and  ship- 
per who  had  acquired  a  fair-sized  working  capital 
would  have  been  very  hkely  at  that  period,  when 
considering  the  advisability  of  extending  his 
trade,  to  have  looked  toward  Canton,  especially 
if  he  dealt  in  a  commodity  such  as  furs,  which 
found  an  eager  and  extensive  market  in  China. 

Weeden,  discussing  the  revival  of  trade  after 
peace  had  destroyed  the  profitable  occupation  of 
privateering,  says: 

In  1783  they  had  begun  to  agitate  the  China  trade  in  Salem. 
In  1784.  the  Connecticut  men  mooted  the  same  question  and  asked 
for  state  aid  in  so  large  a  venture,  which  the  sturdy  farmers  in 
the  legislature  wisely  declined.  In  the  same  year  Captain  John 
Green  sailed  direct  in  the  ship  Empress  from  New  York  for 
Canton.     In   1785   Elias    Hasket   Derby   cleared    his   ship   Grand 

a  business  branching  to  Albany,  Buffalo,  Plattsburg,  and  Detroit." 
Cf.  article  on  John  Jacob  Astor  by  William  Waldorf  Astor, 
Pall  Mall,  Vol.  XVIII,  p.  171. 

i3Parton,  Life  of  John  Jacob  Astor  (New  York,  1865) ;  also 
Pall  Mall,  Vol.  XVIII.  William  Waldorf  Astor  writes  that 
"before  the  end  of  the  century  he  had,  to  quote  his  own  expression, 
'a  million  dollars  afloat,'  which  represented  a  fleet  of  a  dozen 
vessels." 


i 


f 


16  GREAT    FORTUNES. 

Turk,   Captain   West,   from   Salem   for   the   Isle  of   France,  and 
finally  for  Canton.i* 

Thomas  H.  Perkins,  who  had  been  trained  by 
Derby,  also  became  prominent  in  the  China 
trade,  his  vessels  going  chiefly  to  the  northwest 
coast  of  America  and  from  there  to  China  and 
Boston.  For  over  fifty  years  (from  1792  on- 
wards) he  was  engaged  in  this  trade,  and  it  was 
claimed  that  in  the  early  nineteenth  century  no 
private  firm  in  the  world  transacted  more  busi- 
ness in  the  China  trade/^    Weeden  says  again: 

Like  all  grand  commerce  of  the  olden  time,  the  China  trade 
was  a  mighty  round  of  small  exchanges  multiplied  into  the  final 
freight  of  rich  goods  which  included  all  the  accumulated  values 
that  had  gone  before. 1 6 

Ginseng  and  specie  were  particularly  in  de- 
mand for  the  outward  bound  cargoes,  while  the 
ships  came  back  laden  with  tea,  coffee,  muslins, 
silks,  and  other  fine  fabrics.  The  customary 
profits  on  muslins  and  calicoes  from  Calcutta  in 
those  early  days  were  estimated  at  100  per  cent, 
and  over.^^ 

i^Weeden,  Economic  and  Social  History  of  New  England,  Vol. 
II,  pp.  820,  S21;  cf.  also  MacPherson,  On  Commerce,  Vol.  IV, 
p.  57. 

1  "Weeden,  Economic  and  Social  History  of  New  England,  Vol. 
II,  p.  822. 

i676id.,  Vol.  II,  p.  824. 

17  In  1789  four  of  Derby's  ships  were  in  Canton,  and  he 
recorded  (1785-99)  125  voyages,  45  of  which  were  either  to  India 
or  to  China. 


JOHN   JACOB   ASTOR.  17 

It  is  not  surprising  that  the  foreign  carrying- 
trade  should  have  taken  this  particular  direction. 
No  doubt  enterprising  American  merchantmen 
would  have  engaged  in  it  even  before  the  Revo- 
lutionary War,  had  not  the  East  India  Company 
held  a  monopoly  of  the  China  trade.  The  goods 
imported  into  China  were  there  exchanged  for 
other  goods  which,  brought  back  to  Europe  or  to 
America,  yielded  a  very  handsome  profit  that  of- 
fered decided  inducements  to  a  shipper  wishing 
to  extend  his  operations.  The  "Empress  of 
China,"  for  instance,  on  her  pioneer  voyage  to 
Canton  in  February,  1784,  loaded  chiefly  with 
ginseng,  obtained  a  return  cargo  whose  sale  net- 
ted a  profit  estimated  at  $30,000 — a  sum  exceed- 
ing 25  per  cent,  of  the  capital  employed. ^^  As 
in  the  Indian  trade,  profits  grew  out  of  an  ex- 
change between  widely  separated  peoples  of  dif- 
ferent degrees  of  civilization  and  of  diverse  tastes.  "^ 
However,  the  resemblance  probably  goes  no  fur- 
ther, as  the  Chinese  merchant  was,  no  doubt,  as 

In  this  year,  1789,  fifteen  American  vessels  entered  the  port 
of  Canton;  cf.  MacPherson,  On  Commerce,  Vol.  IV,  p.  195. 

In  1788  a  Boston  ship-master  began  to  obtain  furs  from  the 
Indians  of  the  northwest  coast  which  were  carried  to  Canton  and 
exchanged  for  Chinese  produce.  From  1799  to  1818,  108  American 
vessels  were  engaged  in  this  trade,  15,000  sea-otter  skins  being 
collected  and  carried  to  Canton  in  1802.  (Bancroft,  History  of 
the  Northwest  Coast,  Vol.  I,  p.  359.) 

i8"Life  of  Major  Samuel  Shaw,  First  Consul  at  Canton," 
Himfs  Merchants'  Magazine,  Vol.  XVIII. 


18  GREAT    FORTUNES. 

astute  as  the  Yankee  trader,  though  the  latter 
could  not  fail  to  profit  by  the  enhanced  values 
of  his  importations,  resulting  from  the  creation  of 
certain  place  utilities.  The  goods  shipped  to 
China,  natural  products  such  as  furs,  ginseng, 
and  quicksilver,  ^^  were  exported  from  a  country 
with  a  relatively  small  population,  having  a  rela- 
tively sKght  demand  for  such  commodities,  to  a 
densely  populated  district,  where  the  peculiar 
tastes  of  the  inhabitants  afforded  an  eager  mar- 
ket for  them.  Moreover,  they  came  from  a  vir- 
gin country  to  a  region  whose  natural  resources 
had  been  thoroughly  exploited,  a  circumstance 
which  likewise  tended  greatly  to  enhance  price 
discrepancies.  In  addition,  the  American  trader 
profited  by  the  introduction  into  his  own  country 
of  the  teas,  silks,  and  fine  fabrics  of  China  for 
which  there  was  an  ever-growing  demand  with 
the  increase  of  wealth  and  the  development  of 
luxurious  tastes.  He  was  also  advantaged  by 
the  fact  that  China  had  practically  a  monopoly 
of  all  such  commodities,  so  that  the  supply  im- 
ported could  to  a  certain  extent  be  regulated  to 
meet  changes  in  demand. 

There  is  no  available  information  concerning 
the  exact  nature  and  extent  of  Astor's  Chinese 

isSandalwood  also,  obtained  in  the  Sandwich  Islands,  was  im- 
ported by  American  shippers. 


JOHN    JACOB    ASTOR.  19 

ventures.  It  must  suffice  that  he  sent  quantities 
of  furs  to  Canton,  and  brought  back  chests  of 
tea  in  exchange.  His  tea  ships  were  evidently 
the  source  of  considerable  profits,  as  it  is  said 
that  his  loss  of  over  a  million  ^^  in  the  Astorian 
venture  was  more  than  compensated  by  the  prof- 
its from  his  tea,  which  arrived  safely  despite  the 
war  with  Great  Britain.^^  Another  circumstance 
that  contrived  to  render  the  import  trade  profit- 
able was  the  method  of  payment  of  imposts. ^^ 

2oStated  by  Parton.  William  Waldorf  Astor  estimates  his 
losses  at  $800,000. 

21 A  table  showing  the  imports  of  tea  from  China  during  a 
series  of  years  will  enable  one  to  form  an  idea  of  the  exceptional 
gains  to  be  derived  by  a  merchant  with  tea  to  sell  in  the  years 
1810-15. 

Imports  of  Tea  (in  pounds) 

Millions  Millions 

1804-5 7.6  1810-11 2.6 

1805-6 9.8  1811-12 3.4 

1806-7 9.4  1812-13 1.4 

1807-8 5.6  1813-15 1.4 

1808-9 1.5  1815-16 7.7 

1809-10 9.2  1816-17 9.3 

22McCabe,  Great  Fortunes  and  How  They  Were  Made  (1871), 
p.  77;  also.  Life  of  Moses  Taylor,  Hunt's  Merchants'  Magazine, 
June,  1864,  contains  an  incidental  reference  to  the  favorable  eifects 
of  the  prevailing  system  of  government  credits. 

The  American  State  Papers,  Finance,  Vol.  V,  p.  277,  give  some 
statistics  concerning  the  amount  of  the  duties  on  tea  which  are 
as  follows: 

1801-12         1812-17         1817-24 

Bohea   12c  24c  12c 

Imperial    gunpowder         . . .  50c 

Hyson     32c  64c  40c 

A  letter  from  a  Boston  merchant  dated  December,  1825    (cf. 
American  State  Papers,  Finance,  Vol.  V.  pp.  279,  280)  also  gives 


20  GREAT    FORTUNES. 

/The  United  States  allowed  nine,  twelve,  and  in 

/  some  cases  eighteen  months  to  elapse  before  the 

J^payment  was  demanded,  and  in  the  meantime 

/  the  goods  brought  in  could  be  sold  at  an  advance 

over  cost  plus  duties,  and  with  the  proceeds  other 

ships  could  be  sent  to  Canton  and  return  before 

the  duty-bonds  were  due.       In  this  way,  says 

McCabe,  John  Jacob  Astor  had  free  of  interest 

from  the  government  during  a  period  of  eighteen 

<)   or  twenty  years  over  $5,000,000.    The  statement 

seems  not  improbable  if  it  be  remembered  that 

the  duties  on  tea  were  very  high,  and  that  they 

were  increased  in  some  cases  100  per  cent,  for  the 

years  1812-17,  as  a  result  of  the  war.     During 

this  time,  it  should  be  borne  in  mind,  John  Jacob 

Astor  is  said  to  have  been  exceptionally  fortunate 

in  bringing  in  his  ships. 

McCabe-^  quotes  Francis  in  his  Old  Merchants 

valuable  information  concerning  the  schedule  of  duties  and  the 
relation  of  these  to  cost.  "It  so  happens,"  he  says,  "that  I  can 
give  you  facts  in  place  of  speculation  in  answer  to  your  inquiry 
as  to  the  cost  of  tea  in  China.  Within  a  week  two  of  our  ships 
have  come  direct  from  Canton."  Imperial  gunpowder,  costing 
42  cents  per  pound,  pays  a  duty  of  50  cents;  Hyson,  costing  37 
cents,  pays  a  duty  of  40  cents;  Souchong,  costing  15J^  cents,  pays 
a  duty  of  25  cents;  while  Congo  pays  a  duty  equal  to  about  170 
per  cent,  of  its  cost.  "The  teas  usually  bought,"  writes  the  mer- 
chant, "cost  us  about  40  cents  or  32  cents  per  pound  and  pay  a 
duty  of  40  cents."  Since  the  percentage  of  duties  to  cost  was 
in  general  considerably  larger  than  this  during  the  war  period, 
the  immense  advantage  to  be  obtained  from  deferring  the  pay- 
ment of  such  duties  is  obvious. 

28McCabe,  Oreat  Fortunes  and  How  They  Were  Made  (1871), 
pp.  76,  77. 


JOHN   JACOB    ASTOR.  21 

of  New  York  because  of  a  specific  instance  given 
by  the  latter  of  the  way  in  which  dilatory  govern- 
mental regulations  operated  to  the  gain  of  the 
merchants.  The  illustration  is  suggestive,  how- 
ever hypothetical  the  statistics  may  be.  The 
Gris wolds,  owning  the  ship  "Panama,"  start 
from  New  York  with  a  cargo  worth  $200,000, 
$30,000  of  which  is  invested  in  ginseng,  spelter, 
lead,  iron,  etc.,  while  the  remainder  consists  of 
170,000  Spanish  dollars.  The  ship  lands  at  Can- 
ton and  returns  with  a  cargo  of  tea  in  exchange 
for  the  commodities  carried  thither.  The  tea 
upon  importation  pays  a  duty  equal  to  twice  its 
estimated  value.  If  the  cargo  brought  in  is  as- 
sumed to  be  worth  $200,000,  it  will  therefore  pay 
a  duty  of  $400,000,  and  will  thereafter  be  valued 
at  $600,000.  Estimating  that  the  profits  from 
the  sale  of  the  tea  will  be  fifty  per  cent,  of  the 
original  cost  of  $200,000,  the  cargo  then  becomes 
worth  $700,000.  The  tea  will  probably  be  sold 
to  wholesale  grocers  soon  after  its  arrival,  the 
purchasers  giving  their  notes  due  at  the  end  of 
four  or  six  months.  These  notes  may  be  dis- 
counted by  the  shippers,  and  with  the  proceeds 
two  more  vessels  with  a  cargo  of  $200,000  each 
may  be  sent  to  Canton,  and  return  before  the 
$400,000  debt  due  to  the  government  has  to  be 
paid. 


22  GREAT    FORTUNES. 

No  doubt  this  is  a  somewhat  exaggerated 
statement  of  the  ease,  and  it  has  further  to  be 
considered  that  decided  dangers  lurked  in  the  sys- 
tem of  deferred  payments.  It  might,  for  in- 
stance, impel  a  too  venturesome  merchant  to  im- 
port excessive  quantities  of  tea,  thus  flooding  the 
\^niarket  and  depressing  prices,  with  the  result  that 
his  sales  would  not  bring  in  a  sufficient  sum  to  en- 
able him  to  pay  his  indebtedness  to  the  govern- 
ment, and  he  would  consequently  be  forced  into 
bankruptcy.  Indeed,  there  are  to  be  found  occa- 
sional unsubstantiated  references  to  attempts  of 
John  Jacob  Astor  to  steady  the  market  by  buy- 
ing up  excess  supplies  of  tea.  He,  no  doubt,  en- 
joyed the  advantage  of  being  able  to  carry  his 
tea  indefinitely,  and  thereby  escaped  in  part  the 
evils  of  price  fluctuations.  Very  likely  he  may 
have  profited  by  the  facilities  for  purchase  af- 
forded by  low  prices  just  as  wealthy  would-be 
investors  to-day  profit  in  times  of  panic  by  ob- 
taining bargains  in  securities.  On  the  other  hand, 
the  merchants  who  were  forced  to  sell  in  order  to 
meet  their  payments  were  put  in  a  position  sim- 
ilar to  that  of  speculators,  who  in  case  of  finan- 
cial stress  must  sacrifice  their  holdings  to  meet 
current  obligations.  However,  there  is  but  little 
basis  in  fact  for  the  conjectures  that  have  been 
advanced  concerning  Astor's  operations  in  tea. 


JOHN    JACOB    ASTOR.  23 

It  would  merely  seem  from  hints  thrown  out 
here  and  there  that  he  must  have  pursued  some 
such  plan,  although  just  how  far  he  was  enabled 
to  influence  the  market  at  large  by  his  operations, 
it  is  impossible  to  state. 

But  John  Jacob  Astor  enjoyed  an  advantage 
other  than  the  ones  inherent  in  the  trade  itself. 
He  had  not  to  play  the  part  of  an  ordinary  buy- 
er in  the  acquisition  of  goods  for  his  outward- 
bound  cargoes,  at  least  in  so  far  as  those  cargoes 
were  composed  of  furs.  His  final  profits  were  a 
compound  of  the  profits  of  the  fur-trader  and 
the  shipper  of  furs.  The  extent  of  the  profits 
of  the  fur-trader  have  been  suggested,  at  any 
rate,  by  certain  schedules  that  have  been  previ- 
ously stated.  Even  allowing  for  the  additional 
expenses  that  came  with  an  extensive  and  more 
elaborate  corporate  form  of  organization,  profits 
were  still  excessive.^*    Moreover,  there  were  even 


24The  following  statistics  were  compiled  by  an  Indian  agent 
for  the  years  1815-30,  at  a  time  when  furs  had  become  scarcer 
and  Indians  more  sophisticated. 

THE    FUR    TRADE    OK    THE    MISSOURI    AND    ITS    WATERS    INCLUDING    THE 
ROCKY  MOUNTAINS. 

Expenditures. 

30  clerks,  15  yrs.,  at  $500 $    150,000 

200  men,  15  yrs.,  at  150 450,000 

Merchandise    1,500,000 

Total     $2,100,000 


24  GREAT    FORTUNES. 

greater  returns  to  be  got  by  that  trader  who 
could  send  his  skins  directly  to  the  principal  Eu- 
ropean markets.  John  Jacob  Astor,  we  are  told, 
had  established  commercial  relations  with  many 
^r  parts  of  the  world  as  early  as  1800.  What  must 
then  have  been  his  profits  a  decade  later,  after 
he  had  organized  the  American  Fur  Company 
which  was  operating  in  a  comparatively  virgin 
field  and  yet  was  having  its  furs  shipped  to  the 
foremost  distributive  centers  ? 

Until  the  time  that  the  American  Fur  Com- 
pany was  chartered  Astor  had  conducted  his 
business  without  recourse  to  a  formal  organiza- 
tion of  any  sort,  but  as  he  pushed  his  operations 
farther  west  into  the  region  of  the  Great  Lakes, 
and  met  with  the  opposition  of  British  corpora- 

24— Continued.  Returns, 

26,000  bufiPalo  skins  per  yr.  15  yrs.,  at  $3 $1,170,000 

25,000  lbs.  beaver  skin  per  year  15  yrs.,  at  $4  per  lb. . .  1,500,000 

4,000  otter  skins  per  yr.  15  yrs.,  at  ^ 180,000 

12,000  coon  skins  per  yr.  15  yrs.,  at  25c 45,000 

150,000  lbs.  deer  skin  per  yr.  15  yrs.,  at  33c  per  lb 742,500 

37,500  muskrat  skins  per  yr.  15  yrs.,  at  20c 112,500 

Total    $3,750,000 

Profits    1,650,000 

Average  annual  expenditure $140,000 

Average  annual  returns 250,000 

Average  annual  profits 110,000 

— Senate  Document  No.  90,  Twenty-second  Congress,  First 
Session,  p.  53. 

The  statistics  are  apparently  general  estimates,  not  compiled 
with  reierence  to  any  particular  company. 


JOHN    JACOB    ASTOR.  25 

tions,  he  evidently  decided  to  give  his  business  a 
more  definite  form.  In  1808,  therefore,  he  ap- 
plied for  a  charter  from  the  state  of  New  York 
for  the  American  Fur  Company  (capital 
$1,000,000) — a  general  title  designed  to  include 
all  his  operations.^^  The  Mackinaw  Company, 
a  British  concern  which  held  the  trade  about  the 
upper  lakes  and  westward  to  the  Mississippi,  was 
a  formidable  competitor,  but  Astor  in  conjunc- 
tion with  certain  members  of  the  North  West 
Company  bought  it  out  (1811),  and  organized 
a  new  association,  the  South  West  Company, 
which  included  the  British  organization  and  the 
American  Fur  Company.  Astor  was  to  have  a 
two-thirds  interest  in  the  trade  of  the  United 
States  with  the  understanding  that  all  of  it  was 
to  be  his  at  the  end  of  five  years.  However,  this 
arrangement  was  never  put  into  execution,  be- 
cause shortly  thereafter  the  War  of  1812  broke  / 
out,-^  and  the  fur-trade  lapsed  into  a  state  of(j~ 
demoralization  for  the  time  being. 

Meantime  Astor  was  putting  to  the  test  a  mas- 
terly scheme  of  commercial  enterprise,  daring  but 


^5 Michigan  Pioneer  Collections.  Vol.  XI,  p.  189;  Pall  Mall, 
Vol.  XVIII,  p.  184;  H.  M.  Chittenden,  History  of  the  American 
Fur  Trade  of  the  Far  West,  Vol.  I,  p.  167. 

^^History  of  the  American  Fur  Trade  of  the  Far  West,  Vol. 
I,  p.  310;  Bancroft,  History  of  the  Northwest  Coast,  Vol.  I,  p. 
512.  ^ 


26  GREAT    FORTUNES. 

plausible,  requiring  large  expenditures  but  prom- 
ising extravagant  returns.  It  was  a  scheme,  in 
short,  that  could  be  attempted  only  by  a  man  of 
large  resources  who  could  afford  to  wait  years 
for  his  investment  to  repay  the  original  outlay. 
The  Astorian  plan  was  a  brilliant  venture,  but 
it  seemed  to  be  an  equally  safe  one — one  of  those 
undertakings  for  which  the  way  had  been  paved, 
but  the  possibilities  left  untested.  The  idea  was 
«|  to  build  a  line  of  trading-posts  up  the  Missouri 
'Ti  and  across  the  Rockies  to  the  Columbia  and  on 
to  the  Pacific  coast.  St.  Louis  was  to  be  the 
distributing-point  for  all  posts  east  of  the  Rocky 
Mountains,  while  the  fort  to  be  built  at  the  mouth 
of  the  Columbia  and  supplied  by  vessels  sailing 
around  Cape  Horn  was  to  serve  as  a  center  for 
the  western  posts.  The  furs  stored  at  this  latter 
point  were  to  be  taken  by  the  supply  vessels  to 
China  and  there  exchanged  for  a  cargo  of  goods 
suited  to  the  New  York  market.  Incidentally  it 
was  hoped  that  considerable  revenue  would  be  de- 
rived from  provisioning  the  Russian  forts  on  the 
Alaskan  coasts.  To  quote  the  rather  picturesque 
language  of  Bancroft,  which  is  strongly  tainted 
by  mahce : 

It  would  indeed  be  a  smooth  glittering,  golden  round,  furs 
from  Astoria  to  Canton,  teas,  silks,  and  rich  Asiatic  merchandise 
to  New  York,  then  back  again  to  the  Columbia  with  beads,  and 
bells,  and  blankets,  guns,  knives,  tobacco,  and  rum.27 


JOHN   JACOB    ASTOR.  27 

Bancroft  estimates  that  in  this  ways  furs  could 
be  taken  to  China  in  one-half  the  ordinary  time, 
and  supplies  brought  by  vessel  at  one-tenth  the 
overland  cost. 

In  furtherance  of  this  undertaking,  the  Pacific 
Fur  Company  was  formed  in  1810  with  a  capital  ^ 
of  $200,000,  divided  into  one  hundred  shares  of 
which  Astor  held  fifty,  Hunt  as  his  representa-. 
tive  and  chief  manager,  five,  the  other  partners, 
four  each,  while  the  remaining  shares  were  left 
to  the  clerks.  Astor  was  to  furnish  supplies  up 
to  the  amount  of  $400,000  and  to  bear  all  the  loss 
for  the  first  five  years,  although  he  agreed  to 
share  the  profits. ^^  As  has  been  said,  the  scheme 
looked  eminently  practical.  This  northwest  coun- 
try had  been  explored  by  Lewis  and  Clark 
(1804-6)^^  and  a  company  of  St.  Louis  mer- 
chants had  traded  up  the  Missouri  and  Nebraska 
rivers  and  even  built  a  fort  west  of  the  Rocky 
Mountains,  from  which,  however,  they  had  been 

27Bancroft,  History  of  the  Northwest  Coast,  Vol.  II,  p.  139. 

-8 Ross,  Adi^entures  of  the  First  Settlers  on  the  Oregon  or 
Columbia  River,  p.  39. 

^oTurner,  The  Fur  Trade  in  Wisconsin,  Johns  Hopkins 
Studies,  Ninth  Series,  p.  71,  says  that  the  idea  of  the  Lewis  and 
Clark  expedition  was  proposed  to  Congress  by  Jefferson,  as  a 
means  of  fostering  the  Indian  trade.  "Bearing  in  mind  his  [i.  e. 
Jefferson's]  instructions  to  this  party  that  they  should  see  whether 
the  Oregon  furs  might  not  be  shipped  down  the  Missouri  instead 
of  passing  around  Cape  Horn,  and  the  relation  of  his  early  canal 
schemes  to  this  design,  we  sec  he  had  conceived  the  idea  of  a 
transcontinental  fur-trade  which  should  center  in  Virginia." 


A 


28  GREAT    FORTUNES. 

driven  by  the  Indians.^^  As  for  the  trade  from 
the  Pacific  coast  to  China,  it  has  been  already 
shown  that  it  had  been  carried  on  with  immense 
success  since  1788.  So  early  as  1792,  at  least 
twenty-five  vessels,  most  of  them  from  Boston, 
were  on  the  western  coast,  and  Ross  estimated 
^that  they  averaged  a  clear  gain  of  1,000  per  cent, 
every  second  year.  In  view  of  the  extraordinary 
statements  of  Ross  concerning  his  trade  with  the 
Indians  of  the  interior,^ ^  this  estimate  would  ap- 
pear by  no  means  excessive. 

The  country  that  was  to  supply  the  Astorian 
settlement  with  furs  was,  then,  not  altogether 
unknown  territory.  Very  probably  it  would 
have  been  worked  ere  this  by  the  North  West 
Company  (indeed  they  had  built  several  forts 
west  of  the  Rocky  Mountains)  had  it  not  been 
that  Montreal,  the  base  of  supplies,  was  so  far 
away,  and  they  were  prevented  by  the  monopoly 
of  the  East  India  Company  from  shipping  di- 
rectly to  China.  That  Astor  feared  their  possi- 
ble competition  is  evidenced  by  the  fact  that  he 
offered  them  a  one-third  interest  in  his  new  en- 
terprise. His  offer  being  refused,  he  did  the  next 
best  thing — seduced  some  of  their  most  experi- 

soGeorge  Bryce,  The  Remarkable  History  of  the  Hudsoii's  Bay 
Co.,  chap.  xxii. 

3iCf.  p.  12  of  this  volume. 


JOHN   JACOB    ASTOR.  29 

enced  men  into  partnership  with  him  by  promis- 
ing them  most  generous  terms.^^ 

As  has  been  shown,  it  was  not  in  any  single  fea- 
ture that  the  Astorian  scheme  appeared  original, 
although  the  fur-trade,  at  best,  demanded  adven- 
turous daring — a  reaching-out  into  new  fields. 
But,  as  a  great  co-ordinating  scheme,  the  plan 
bore  witness  to  the  organizing  ability  and  the 
grasp  of  the  man  who  conceived  it.  Its  aim  was 
distinctly  monopolistic,  and  if  it  had  succeeded, 
it  would  have  been  a  disastrous  blow  to  Astor's 
rivals.  With  New  York  as  an  outlet  for  the  east- 
ern posts,  with  Astoria  as  an  outlet  for  the  west- 
ern ones,  and  with  St.  Louis  as  the  feeder  for  the 
middle  territory,  Astor  would  have  been  infinite- 
ly better  equipped  than  rivals  who  had  to  send 
supplies  by  land,  and  conduct  their  operations 
with  foreign  countries  from  a  single  center.  Ross, 
a  Scotchman  who  went  on  the  Astorian  expedi- 
tion and  afterward  developed  a  bitter  hostility 
to  Astor,  characterized  the  Pacific  Fur  Com- 
pany as 

that  concern  which  proposed  to  extend  its  grasping  influence 
from  ocean  to  ocean  and  which,  to  use  the  projector's  own  words, 
was  to  have  annihilated  the  South  Company,  rivaled  the  North 
West  Company,  extinguished  the  Hudson's  Bay  Company,  driven 


32Bancroft,  History  of  the  Northwest  Coast,  Vol.  II,  pp.  141, 
142;  Washington  Irving,  Astoria,  pp.  35,  36. 


80  GREAT    FORTUNES. 

the  Russians  into  the  Frozen  ^  Ocean,  and  with  the  resources  of 
China  to  have  enriched  America,  a  3 

The  plan  failed,  but  not  because  of  any  diffi- 
culties that  could  have  been  foreseen.  The  War 
of  1812  broke  out,  Astor's  supply  ship  did  not 
arrive  on  time,  and  it  was  feared  a  British  man- 
of-war  might  appear  any  day  and  demand  the 
f  surrender  of  the  fort.  The  partners,  therefore, 
-^old  out  to  a  representative  of  the  North  West 
Company  for  $80,500.^^  This  sum  seems  decid- 
edly insignificant,  in  view  of  the  fact  that  Astor 
had  spent  over  a  million  dollars  to  carry  his  plans 
into  effect.  There  had  been  an  overland  expedi- 
tion to  equip,  and  a  party  to  be  sent  by  sea,  with 
two  supply  vessels  to  follow  before  any  news  of 
the  first  one  could  be  had.  The  "Tonquin,"  the 
ship  which  conveyed  some  of  the  partners  to  As- 
toria, was  blown  up  after  captain  and  crew  had 
been  massacred  by  the  Indians  of  the  upper  coast 
while  on  a  trading  expedition;  and  a  ship  carry- 
ing supplies  was  wrecked  off  the  Sandwich  Is- 

33R0SS,  Adventures  of  the  First  Settlers  on  the  Oregon  or 
Columbia  River,  p.  370. 

34Chittenden,  The.  History  of  the  American  Fur  Trade  of  the 
Far  West,  Vol.  I,  chap,  xii;  Bancroft,  History  of  the  Northviest 
^oast,  Vol.  II,  p.  229,  notes  8  and  9. 

"Mr.  Astor,"  says  Ross,  "thought  he  M'as  cheated  because  the 
beaver  on  hand  was  sold  at  $3.00,  and  the  otter  at  $0.50,  when 
these  skins  were  bringing  $5.00  or  $6.00  each  at  Canton."  How- 
ever that  may  be,  there  were  mutual  recriminations  of  a  more 
serious  nature,  the  recital  of  which  would  not  be  at  all  pertinent 
to  the  present  investigation. 


JOHN   JACOB    ASTOR.  31 

lands.  The  cargoes  were  insured,  however,  so  that 
probably  the  worst  result  of  these  losses,  finan- 
cially speaking,  was  the  disheartening  effect  that 
they  had  on  the  men  stationed  at  Astoria.  An- 
other ship,  moreover,  after  provisioning  Astoria, 
had  sailed  northward  to  the  Russian  settlements 
and  thence  directly  to  China,  the  captain  refus- 
ing to  put  in  again  at  that  post,  although  he  had 
Hunt,  the  chief  manager,  aboard.  This  vessel 
carried  furs  costing  $25,000  to  Canton,  which 
would  at  that  time  have  sold  for  $150,000,  the 
proceeds  invested  in  nankeens  bringing  perhaps 
$300,000  in  New  York."'  No  wonder,  after  such 
expenditures  and  with  such  profits  in  anticipa- 
tion, that  Astor  should  have  lamented  the  sale  of 
his  interests  to  the  North  West  Company  at 
any  price  they  might  have  offered. 

The  check  given  to  this  plan  for  the  develop- 
ment of  the  northwestern  trade  by  the  failure  of 
the  Astorian  scheme  was  effectual.  It  may  seem 
strange  that  Astor  did  not  renew  his  attempts 
upon  the  conclusion  of  the  war,  but  it  ought  to 
be  remembered  that  the  North  West  Company 
retained  possession  of  Astoria,  now  Fort  George, 
until  August,  1818,  and  that  during  all  this  pe- 
riod, the  northwest  boundary  was  matter  for  dis- 

soBancroft,  History  of  the  Northwest  Coast,  Vol.  II,  p.  220. 


/ 


82  GREAT    FORTUNES. 

pute.  In  1818  it  was  agreed  that  a  settlement  of 
the  boundary  question  should  be  postponed  for 
ten  years,*^^  during  which  time  the  northwest 
coast  was  to  be  open  to  subjects  of  both  nations. 
In  view  of  the  uncertainty  connected  with  the 
final  disposition  of  this  territory,  as  well  as  in 
view  of  the  fact  that  the  North  West  Company 
was  now  firmly  intrenched  in  the  region,  it  was 
not  surprising  that  Astor  should  have  definitely 
relinquished  his  plans.  It  should  be  remembered, 
too,  that  the  North  West  Company  boasted  an 
organization  superior  to  that  of  the  American 
Fur  Company.  Its  men  were  highly  trained,  its 
working  arrangements  thoroughly  perfected,  and 
its  dealings  with  the  Indians  subjected  to  definite 
rules  and  regulations.  The  way  in  which  this 
company  had  conducted  its  commerce  with  the 
natives  had  tended  to  attach  them  to  its  interests, 
and  whenever  American  traders  encountered  its 
competition  it  was  apt  to  be  to  their  eventual 
discomfiture.  None  knew  better  than  Astor  the 
extent  of  the  competitive  resources  of  the  North 
West  Company,  and  before  attempting  to  carry 
the  Columbian  plan  into  effect,  he  had  tried  to 
secure  the  co-operation  of  these  rivals.  When 
he  failed  in  that,  he  selected  men  from  the  North 

36lt  was  not  finally  settled  till  194G. 


JOHN    JACOB    ASTOR.  33 

West  Company  to  take  charge  of  the  undertak- 
ing, because  he  thought  that  they  alone  had  the 
requisite  experience  and  hardihood  to  make  suc- 
cess possible.  Their  desertion,  coupled  with  the 
presence  in  the  field  of  the  North  West  Company 
itself,  meant  that  the  American  organization 
would  have  to  engage,  competitively  speaking,  in 
a  campaign  of  offense  under  the  direction  of  sub- 
ordinates less  experienced  than  those  in  the  em- 
ploy of  the  British  company.  Such  considera- 
tions as  these  were,  no  doubt,  conclusive  in  deter- 
mining Astor  not  to  revive  his  western  project. 

Thereafter,  operations  were  generally  confined 
to  the  middle  west,  but  the  North  West  Com- 
pany was  paid  in  kind  for  the  part  it  played  in 
the  enforced  sale  of  Astoria.  After  the  conclu- 
sion of  the  war,  John  Jacob  Astor  employed  all 
his  political  influence  to  procure  the  passage  of 
a  bill  excluding  foreigners  from  participation  in 
the  fur-trade  of  the  United  States.  He  was  suc- 
cessful in  this  attempt  and  in  1816  the  North 
West  Company  was  forced  to  relinquish  certain 
lucrative  posts  south  of  the  Canadian  line.  Astor 
immediately  bought  up  all  these  posts  very  much 
at  his  own  price,'^^  and  in  the  same  year  organized 

3 7 Chittenden,  The  History  of  the  American  Fur  Trade  of  the 
Far  West,  Vol.  I,  pp.  v3l0,  311;  Bancroft,  The  History  of  the 
Northwest  Coast,  Vol.  I,  p.  513;  J.  H.  Lockwood,  "Early  Times 
and  Events  in  Wisconsin,"  Wisconsin  Historical  Collections,  Vol. 
IV,  p.  102. 


I 


34  GREAT    FORTUNES. 

the  American  Fur  Company  which  combined 
these  newly  acquired  possessions  with  those  of 
the  South  West  Company  incorporated  just  be- 
fore the  outbreak  of  the  War  of  1812.  The  inci- 
dent affords  an  illustration  of  one  prolific  source 
of  wealth  to  the  man  who  is  already  rich:  the 
ability  to  create  and  to  take  advantage  of  excep- 
tional opportunities  to  acquire  property  for  less 
than  it  is  worth.  It  is,  perhaps,  the  same  sort  of 
thing  that  occurs  to-day  when  men  of  wealth  slip 
into  the  control  of  corporations  suffering  a  tem- 
porary financial  embarrassment.  It  is  again  a 
case  of  forced  sale;  they  get  something  for  less 
than  it  is  worth,  because  of  the  pressure  that  has 
been  brought  to  bear  upon  those  in  possession. 
And  in  some  instances,  as  is  well  known,  the  pur- 
chasers have  themselves  been  instrumental  in 
causing  that  pressure  to  be  exerted. 

At  first,  the  American  Fur  Company  traded 
in  the  region  of  the  Great  Lakes,  the  upper  Mis- 
sissippi, and  a  tract  east  of  Lake  Huron,  with 
Mackinaw  as  its  base,  but  gradually  it  extended 
its  territory,  and  in  1822  its  western  department 
was  established  with  headquarters  at  St.  Louis. 
This  department  was  confined  to  the  Missouri 
River  and  to  the  lower  posts  on  the  Mississippi 
and  the  Illinois.  In  1826,  it  came  into  collision 
with  the  Columbia  Fur  Company,  with  which  it 


CF 

JOHN   JACOB    ASTOR.  35 

effected  a  union  in  1827,  the  name  of  the  com- 
bination being  changed  to  the  North  American 
Fur  Company.  The  organization  of  the  Colum- 
bia Company  was  left  practically  intact,  it  be- 
ing transformed  into  a  sub- department  having 
charge  of  the  trade  of  the  Missouri  above  the 
mouth  of  the  Big  Sioux.^^ 

Forsythe,  in  a  letter  to  Secretary  of  War 
Cass,^^  dated  1831,  gives  some  interesting  details 
concerning  the  trade  of  the  region  dominated  by 
the  North  American  Company.  The  traders 
supplied  the  Indians  in  the  autumn  with  goods 
on  credit,  before  the  hunting  season  began.  As 
possibly  not  more  than  half  the  debts  thus  con- 
tracted were  made  good,  the  Indians  were  forced 
to  pay  twice  the  price  in  skins  that  they  would 
have  had  to  pay  in  the  spring  when  provided  with 
furs.  The  Sauk  and  Fox  Indians  (population 
about  6,000),  wrote  Forsythe,  had  become  so 
entirely  dependent  upon  the  traders  for  their 
winter  supplies,  that  they  would  have  hterally 
starved  without  them.  Consequently,  they  were 
forced  to  make  their  purchases  in  the  autumn. 


38Chittenden,  The  History  of  the  American  Fur  Trade  of  the 
Far  West;  cf.  chapters  dealing  with  the  North  American  Fur 
Company  in  Vol.  I. 

39Cf.  Chittenden,  Vol,  III,  p.  936,  for  a  letter  from  Thomas 
Forsythe  to  Lewis  Cass,  Secretary  of  War.  [From  the  Manu- 
script Department  of  the  State  Historical  Society  of  Wisconsin.] 


36  GREAT    FORTUNES. 

paying  exorbitant  prices  for  the  most  necessary 
articles.^^  If  debts  such  as  these  were  eventually 
discharged,  the  trader  made  a  profit  approxi- 
mating 100  per  cent.;  but  assuming  that  only  a 
half  or  even  a  third  of  the  debts  were  collected, 
the  gains  were  still  of  a  size  to  justify  suspicions 
of  exploitation.  Certainly  it  was  a  master-stroke 
to  divert  the  Indians  from  the  varied  activities 
which  made  of  them  a  self-sufficing  people;  in- 
duce them  to  become  fur-trapping  specialists  for 
the  benefit  of  the  white  man;  and  then  purchase 

4oThe  following  is  an  estimate  of  certain  transactions,  serving 
to  show  the  profits  of  the  trader  under  ordinary  conditions: 

The  Indian  takes  credit  in  the  autumn  for 

A  3-point  blanket  at -$10.00 

A  rifle    gun 30.00 

A  pound   of   gunpowder 4.00 

$44.00 
A  3-point  blanket  will  cost  in  England  say  16*. 

A  blanket  at  100  per  cent $  3.52 

A  rifle  gun   (at  St.  Louis) 12.00-13.00 

A  pound  of  gunpowder 0.20 

.$16.72 
25  per  cent,  for  expenses 4.18 

$20.90 
P>om  Forsythe's  letter  to  Cass,  Chittenden,  Vol.  IV,  p.  926. 

The  trader  took  for  a  dollar  a  large  buckskin,  weighing  per- 
haps six  pounds,  or  two  doeskins,  four  muskrats,  four  or  five 
raccoons  or  allowed  the  Indian  three  dollars  for  an  otter  skin, 
and  two  dollars  for  one  pound  of  beaver. 

Turner,  Johns  Hopkins  Studies,  No.  9,  states  that  the  system 
of  credits  dates  back  to  the  French  period.  Cf.  also  American 
State  Papers,  Indian  Affairs,  Vol.  II,  pp.  64-66. 


JOHN   JACOB    ASTOR.  37 

their  furs  on  credit,  at  prices  based  upon  a  knowl- 
edge of  their  superinduced  economic  dependence. 


Turner  says : 

left  the  Indians  at  the  mercv  of  the  trader 


The  credit  system  left  the  Indians  at  the  mercy  of  the  trader 
when  one  nation  monopolized  the  field  and  it  compelled  them  to 
espouse  the  cause  of  one  or  other  when  two  nations  contended  for 
supremacy  over  their  territorj^  At  ttie  same  time  it  rendered  the 
trade  peculiarly  adapted  to  monopoly,  for  when  rivals  competed 
the  trade  was  demoralized  and  the  Indian  frequently  sold  to  a 
new  trader  the  furs  which  he  had  pledged  in  advance  for  the 
goods  of  another.  When  the  American  Fur  Company  gained 
control,  they  systematized  matters,  so  that  there  was  no  competi- 
tion between  their  own  agents,  and  private  dealers  cut  into  their  \ 
trade  but  little  for  some  years.  (j- 

Indeed,  the  North  American  Fur  Company  was 
recognized  as  being  "the  monopoly" — the  organ- 
ization with  which  every  individual  or  group  of 
individuals  attempting  to  operate  independently 
must  expect  to  cope.  It  was  not  that  the  field 
was  by  any  means  fully  covered,  but  Astor's  com- 
pany operated  over  a  sufficiently  extensive  region 
with  sufficiently  large  resources  to  enable  it  to 
employ  against  its  rivals  every  device  known  to 
monopolistic  competition.  The  nature  of  the  fur- 
trade  was  such  that,  as  regarded  actual  opera- 
tions in  the  field,  the  individual  trader  was  fre- 
quently at  a  positive  advantage  in  a  given  lo- 
cality. In  his  direct  dealings  with  the  Indians 
there  was  no  reason  why  he  should  not  make  as 
good  a  bargain  as  another  man,  and  when  he  was 


88  GREAT    FORTUNES. 

able  to  dispense  rum  (which  he  could  more  eas- 
ily smuggle  into  the  Indian  country  than  could 
a  prominent  corporation)  he  was  sure  to  get  the 
very  best  of  the  trade/^ 

But  the  North  American  Fur  Company  had 
that  never-failing  resource  of  an  extended  mon- 
opoly— ^it  could  change  its  schedule  of  prices  to 
meet  the  exigencies  of  the  situation.  Chittenden 
says: 

[It  did]  very  much  as  [does]  the  Standard  Oil  Company 
to-day  [which]  crushes  any  rival  enterprise  that  may  dare  to 
show  its  head  in  any  part  of  the  United  States.  .  .  .  Carte 
blanche  to  the  clerks  simply  meant  that  they  might  pay  the 
Indians  any  price,  however  high,  for  furs,  and  might  make  use  of 
any  amount  of  liquor  that  was  necessary  to  secure  the  trade.*2 

Naturally,  persons  operating  vrithin  a  limited 
territory  could  not  withstand  such  an  opposition 

4iThe  importation  of  liquor  into  the  Indian  country  was  abso- 
lutely forbidden  in  1832,  although  the  American  Fur  Company 
pleaded  to  use  it  in  the  territory  of  its  foreign  rivals. 

42Chittenden,  Vol.  I,  p.  353;  Childs,  Wisconsin  Historical  Col- 
lections, Vol.  IV,  p.  156;  White,  Michigan  Pioneer  Collections, 
Vol.  XI,  p.  180. 

John  Johnston  in  a  letter  to  his  sister  from  Fond  du  Lac, 
August  27,  1833,  says  that  the  Indians  whom  he  told  that  he  was 
conducting  an  expedition  in  opposition  to  the  American  Fur  Com- 
pany, "seemed  pleased  at  the  thought  of  opposition,  but  the 
'Company,'  they  said,  had  used  threats  where  milder  means  failed 
to  deter  them  from  encouraging  new-comers"  (Smithsonian, 
Schoolcraft  Papers). 

In  another  letter  from  Leech  Lake,  November  4,  1833,  John- 
ston writes  that  although  the  Indians  of  the  region  kill  animals 
whose  furs  amount  to  100  or  130  packs,  weighing  from  eighty  to 
ninety  pounds  each,  the  opposition  traders  have  never  left  the 
country  with  more  than  five  or  at  most  eight  packs  (Smithsonian, 
Schoolcraft  Papers). 


JOHN   JACOB    ASTOR.  39 

which  might  continue  for  an  indefinitely  long  pe- 
riod without  serious  injury  to  the  larger  organi- 
zation. It  is  just  this  sort  of  competition  that 
causes  the  greatest  amount  of  irritation  to-day 
under  a  more  highly  developed  industrial  organi- 
zation. It  causes  irritation,  because  it  is  evi- 
dence of  an  advantage  due  to  size  rather  than 
efficiency.  From  the  nature  of  the  case  the  fur- 
trade  did  not  permit  of  an  excessively  complex 
organization,  as  within  any  particular  region  the 
methods  of  doing  business  were  much  the  same; 
it  was  a  case  of  barter  with  simple  people  whose 
ignorance  put  them  quite  outside  the  pale  of  eco- 
nomic generalizations  on  the  subject  of  exchange. 
The  North  American  Fur  Company  was  not, 
then,  a  highly  integrated  industrial  machine 
whose  efficiency  and  economy  of  operation  of- 
fered justification  for  the  disappearance  of  less 
fit  organizations.  It  simply  engrossed  the  busi^ 
ness  of  other  concerns  because  of  its  greater  re- 
sources— a  case  of  acquisition,  pure  and  simple, 
since  it  introduced  no  innovations  when  once  in- 
stalled in  the  place  of  its  rivals. 

But  price  inequalities  were  not  the  only  effi- 
cient factors  in  establishing  the  Astor  monopoly. 
Competition  could  be  overborne  by  physical  ex- 
pedients as  well;  and  it  was.  Force  and  fraud 
were  the  weapons  of  all  parties,  but  naturally 


40  GREAT    FORTUNES. 

they  were  weapons  that  could  be  wielded  more 
effectively  by  a  large  corporation  than  by  pri- 
vate individuals.  It  is  not  surprising  that  blood- 
shed, even  murder,  should  figure  in  the  competi- 
tive annals  of  the  fur-trade.  There  was  no  ef- 
fective police  control  save  such  as  the  trading 
companies  themselves  tried  to  exercise.  The  sub- 
ordinates had  been  trained  to  habits  of  strife  by 
their  mode  of  life  and  for  them  the  contest  was 
sometimes  a  primitive  struggle  in  which  the  eco- 
nomic interests  involved  remained  very  obscure. 
None  the  less,  it  was  an  effective  mode  of  aggran- 
dizement, redounding  to  the  enrichment  of  men 
such  as  Astor  who,  detached  from  intimate  con- 
nection with  such  affairs,  would  no  doubt  have 
condemned  these  methods  in  their  cruder  mani- 
festations. They  were,  however,  the  natural  con- 
comitants of  competition  unrestrained  by  legal 
authority,  and  as  such  they  come  within  the  range 
of  economic  interest. 

Another  reason  why  competition  was  so  disas- 
trous was  perhaps  because  of  the  fact  that  the 
risks  of  loss  were  thrown  upon  the  company  trad- 
ers. The  goods  were  furnished  by  Astor,  at  a 
fixed  advance  upon  costs  and  charges,  to  the  vari- 
ous distributing  posts  of  the  interior.^^    Here  the 

43"None  of  the  traders  became  wealthy.  Astor's  company 
absorbed  the  profits.    It  required  its  clerks  or  factors  to  pay  an 


JOHN   JACOB    ASTOR.  41 

outfits  were  made  up  and  there  was  a  second  reg- 
ular advance.  The  chances  of  loss  therefore  all 
fell  uj)on  the  trader  and  sometimes  he  must  needs 
resort  to  desperate  expedients,  if  he  would  come 
out  with  any  profits.  Not  only  did  the  company 
throw  the  risks  upon  individuals,  but  it  has  been 
said  with  a  certain  amount  of  justice,  that  it  left 
to  other  men  and  other  companies  the  task  of 
opening  up  new  regions,  which  it  could  after- 
ward enter  with  perfect  assurance  that  its  supe- 
rior resources  would  eventually  enable  it  to  take 
the  field.  Such  a  conservative  policy  is,  of  course, 
in  interesting  contrast  ^\  ith  John  Jacob  Astor's 


advance  of  81'/^  per  cent,  on  the  sterling  cost  of  the  blankets, 
strouds,  and  other  English  goods  in  order  to  cover  the  costs  of 
importation  and  the  expense  of  transportation  from  New  York  to, 
Mackinaw.  Articles  purchased  in  New  York  were  charged  with, 
15  1-3  per  cent,  advance  for  transportation  and  each  class  of  pur- 
chasers was  charged  with  33 1-3  per  cent,  advance  as  profit  on 
the  aggregate  amount."  "Schoolcraft  Report,"  Senate  Document, 
No.  90,  T'wenty-second  Congress,  First  Session,  p.  42. 

Cf.  also  a  letter  of  John  Johnston  to  his  sister  from  Sault  Ste. 
Marie,  July  23,  1833.  (Smithsonian,  Schoolcraft  Papers.)  John- 
ston says:  "The  Eastern  merchants  furnish  goods,  merchandise 
and  all  necessary  articles  for  trade  at  a  certain  percentage,  with 
the  privilege  of  having  the  first  refusal  of  the  furs  obtained."  The 
independent  trader,  Johnston  thought,  could  make  a  fair  profit, 
"but,"  he  writes,  "when  individuals  or  companies  were  interested 
with  the  company  [i.  e.,  the  company  furnishing  supplies]  in 
place  of  33 1-3  per  cent,  they  charged  10  per  cent,  and  received 
one-half  the  profits  made  on  outfits  and  on  receipt  of  the  furs 
generally  gave  what  they  thought  proper."  At  the  outfitting 
posts  he  thinks  there  is  scarcely  any  competition,  the  trader  being 
compelled  to  take  the  merchandise  at  exorbitant  charges.  "To 
obtain  and  pay  for  goods  and  barely  obtain  a  livelihood  the  whole 
weight,  extortion,  fraud,  and  deceit  falls  on  the  Indians." 


42  GREAT    FORTUNES. 

early  ventures.  Then,  he  chose  that  field  which 
seemed  to  offer  the  best  chance  of  gain,  and  lie 
prladly  ran  the  risks  involved  for  the  sake  of  the 
large  returns  he  might  secure.  But  for  a  com- 
pany covering  a  great  territory  whose  work  was 
done  by  subordinates,  matters  were  quite  other- 
wise. It  was  possible  to  estimate  one  year  with 
another  the  chances  of  gain  or  loss,  and  to  make 
advances  to  the  traders  on  the  basis  of  such  esti- 
mates. The  position  of  the  trader  was  somewhat 
analogous  to  that  of  the  Indian;  he  was  for  the 
time  dependent  unon  the  supplies  offered  him  by 
the  North  American  Fur  Company  and  he  must 
perforce  accept  them  upon  the  terms  granted  by 
the  company.  Judging  from  the  usual  penniless 
condition  of  the  trader,  the  American  Fur  Com- 
pany must  have  gained  considerably  more  than  it 
would  have  gained  had  it  not  shifted  the  risks. 
\  By  1834,  Astor's  fur  interests  had  become  of 
4--«light  moment  in  comparison  with  his  immense 
real  estate  holdings,  and  he  was,  moreover,  get- 
ting too  old  for  active  participation  in  the  work 
of  direction.  Consequently,  in  the  year  named 
he  sold  out  his  interests  in  the  Northern  Depart  - 
ment  of  the  American  Fur  Company  to  Ramsay 
Crooks  and  his  associates,  while  the  western  de- 
partment was  taken  over  by  Pratte,  Chouteau 
&  Company,  of  St.  Louis.    Chittenden  suggests 


JOHN    JACOB    ASTOR.  43 

that  this  move  may  have  been  dictated  by  certain 
purely  economic  considerations  which  do  credit 
to  his  business  astuteness.  In  proof,  he  cites  a 
statement  in  a  letter  from  Astor  written  from 
London  the  summer  before  the  sale  of  his  inter- 
ests: ''I  much  fear,"  he  writes,  "beaver  will  not 
sell  well  very  soon  unless  very  fine.  It  appears  ^ 
that  they  make  hats  of  silk  instead  of  beaver." 
But  it  was  probably  not  from  the  point  of  view 
of  demand  alone  that  the  fur-trade  showed  signs 
of  decline.  The  supply  of  furs  was  also  becom- 
ing scarcer  and  the  expenses  connected  with  the 
trade  were  increasing  as  it  became  necessary  to 
push  the  trading-posts  farther  west.  William  B. 
Astor,  writing  to  the  Secretary  of  War  in  re- 
sponse to  inquiries  concerning  the  state  of  trade, 
says: 

On  the  frontiers  the  deer  and  other  large  animals  have  nearly 
disappeared,  and  in  that  region  a  great  reduction  is  also  visible 
in  the  number  of  those  which  are  valuable  for  their  fur.  But  in 
what  may  more  properly  be  called  "the  Indian  country"  there  is 
but  little  diminution  of  late  years,  and  what  the  advance  of  the 
whites  annually  takes  away  is  almost  made  good  by  the  extension 
of  our  trading-posts,  more  particularly  toward  the  Rocky  Moun- 
tains; so  that  if  we  have  less  of  one  thing,  we  have  more  of 
another,  and  the  annual  value  of  our  aggregate  returns  is  pretty 
much  the  same.** 

It  will  be  noticed  that  William  Astor's  state- 
ment contains  several  reservations.     He  alleges 

**Senate  Document,  No.  90,  Twenty-second  Congress,  First 
Session,  p.  77. 


I 


M  GREAT    FORTUNES. 

that  the  trade  is  "almost"  made  good,  and  the 
value  of  the  aggregate  returns  he  affirms  to  be 
"pretty  much  the  same." 

Schoolcraft  writing  in  1836  says  of  northern 
Michigan: 

The  value  of  the  fur-trade  in  this  portion  of  the  country  is 
one  of  questionable  character,  at  the  present  era.  Large  sums 
have  fonnerly  been  made  as  well  as  lost  in  its  prosecution.  But 
more  than  nine-tenths  of  the  whole  avails  of  this  trade  have  been 
sent  to  seaboard  or  foreign  markets  and  have  not  enriched  the 
resident  inhabitants.  This  trade  is  yearly  diminishing  and  it  may 
perhaps  be  added,  the  sooner  it  is  extinct  and  both  the  white  men 
and  Indians  employ  themselves  in  regular  industry  the  better. *» 

It  is  evident  from  the  foregoing  statements 
that  the  country  furnishing  the  American  Fur 
Company  with  the  main  portion  of  its  supplies 
was  becoming  rapidly  populated  and  therefore 
unfit  territory  for  the  hunter.  Moreover,  the  re- 
gion toward  the  mountains  could  only  be  ex- 
ploited at  an  increased  expense,  and  in  the  face 

45ln  the  Appendix  of  Washington  Irving's  Astoria  (Philadel- 
phia ed.,  1873),  p.  640,  appears  an  article  entitled,  "Notices  of  the 
Present  State  of  the  Fur-Trade  Chiefly  Extracted  from  an  Article 
Published  in  Silliman's  Magazine  for  June,  1834."  It  is  there 
stated  that  "it  appears  that  the  fur-trade  must  henceforward 
decline.  The  advanced  state  of  geographical  science  shows  that 
no  new  countries  remain  to  be  explored.  In  North  America  the 
animals  are  slowly  decreasing  from  the  persevering  efforts  and  the 
indiscriminate  slaughter  practised  by  the  hunters  and  by  the 
appropriation  to  the  uses  of  man  of  those  forests  and  rivers 
which  have  afforded  them  food  and  protection.  They  recede  with 
the  aborigines  before  the  tide  of  civilization,  but  a  diminished 
supply  will  remain  in  the  mountains  and  uncultivated  tracts  of 
this  and  other  countries,  if  the  avidity  of  the  hunter  can  be 
restrained  within  proper  limitations." 


JOHN    JACOB    ASTOR.  45 

of  a  competition  which  was  practically  non-exist- 
ent for  the  Astor  interests  in  the  middle  west.  If 
John  Jacob  Astor  were  cognizant  of  all  these 
facts,  they  were  no  doubt  a  more  potent  influence 
than  old  a^e  in  effecting  his  withdrawal  from  the 
trade.  The  chances  are  that  he,  in  common  with 
many  men  of  lar^e  fortune,  was  just  as  eager 
to  scent  signs  of  decay  as  he  was  quick  to  de- 
tect evidences  of  potential  prosperity;  just  as 
opportune  in  withdrawing  from  a  declining  ven- 
ture, as  timely  in  undertaking  any  new  enter- 
prise that  promised  growth. 

II, 

Thus  far  only  the  trading  ventures  of  John 
Jacob  Astor  have  been  discussed.  But  it  is 
not  therefore  to  be  inferred  that  they  were  the  sole 
species  of  gain-getting  with  which  Astor  was 
identified.  In  fact,  it  is  well  known  that  the  re- 
turns derived  from  trade  were  quantitatively  a 
comparatively  insignificant  portion  of  the  great 
fortune  which  he  transmitted  to  his  descendants, 
the  bulk  of  that  fortune  being  derived  from  real- 
estate  investments  in  and  around  New  York 
City.  Nevertheless,  the  profits  that  grew  out  of 
Astor's  early  operations  in  the  fur-trade  and  in 
foreign  shipping  afforded  the  means  necessary 
for  embarkation  upon  his  policy  of  land  invest- 


46  GREAT    FORTUNES. 

ment.  Consequently,  the  initial  stages  in  the  de- 
velopment of  his  trading  interests  gain  added  sig- 
nificance as  the  indispensable  antecedents  of  a 
later  era  of  bewilderingly  rapid  expansion  of 
wealth. 

As  early  as  1800  Astor  adopted  the  policy  of 
utilizing  his  mercantile  gains  in  the  purchase  of 
land  just  beyond  the  city  limits.  He  gradually 
sold  this  land  as  its  price  advanced,  in  order  that 
more  extensive  tracts  somewhat  farther  out  might 
be  bought  with  the  proceeds.  Parton  tells  a 
story  that  serves  to  illustrate  his  methods.  In 
1810,  it  is  said,  Astor  sold  a  lot  near  Wall  Street 
for  $8,000 — a  sale  highly  pleasing  to  the  pur- 
chaser, who  averred  that  in  a  few  years  it  would 
be  worth  $12,000.  "Yes,"  said  Astor,  "but  with 
the  $8,000  I  will  buy  eighty  lots  above  Canal 
Street,  and  by  that  time  my  lots  will  be  worth 
$80,000." 

It  was  somewhat  prior  to  the  date  of  this  pru- 
dent sale  that  Astor  bought  up  the  rights  of  suc- 
cession to  certain  lands  in  Putnam  County*^ — a 
purchase  destined  to  bring  his  name  into  rather 


*6Cf.  Parton,  Life  of  John  Jacob  Astor.  Cf.  also,  NUes'  Reg- 
ister, February  27,  1819;  June  7,  1828;  March  20,  1830;  June  26, 
1830.  Cf.  also,  the  case  of  Jackson  vs.  Carver,  Circuit  Court  of 
the  United  States  for  the  Southern  District  of  New  York.  Re- 
ported by  E.  V.  Sparhawk  for  the  New  York  American.  Pub- 
lisher, Elam  Bliss,  New  York,  1827. 


JOHN   JACOB   ASTOR.  47 

unpleasant  repute.  At  the  outbreak  of  the  Revo- 
lutionary War  about  one-third  of  the  lands  in 
Putnam  County  had  been  held  by  Roger  and 
Mary  Morris,  but,  as  they  were  loyalists,  their 
holdings  had  been  declared  attainted,  and  had  been 
taken  over  by  the  state.  In  some  way,  John  Ja- 
cob Astor  learned  that  the  Morrises  had  possessed 
only  a  life-interest  in  the  property,  and  that  upon 
their  death  their  heirs  could  still  inherit  it,  the  at- 
tainder not  operating  to  divest  the  latter  of  their 
rights  of  succession.  Astor  thereupon  purchased 
the  rights  of  the  heirs  (1809)  for  the  sum  of 
$100,000.  At  the  time  about  seven  hundred  fam- 
ilies were  settled  on  the  property,  residing  there 
under  titles  given  them  by  the  state,  and  quite  ig- 
norant of  the  fact  that  they  were  in  imminent 
danger  of  dispossession.  Some  years  later,  there 
was  great  consternation  when  Astor  made  known 
his  claims,  and  the  state  legislature  at  once  ap- 
pointed commissioners  to  inquire  into  the  matter 
and  see  what  could  be  done.  At  that  period  the 
lands  in  dispute  were  conceded  to  be  worth  $667,- 
000,  but  Astor's  offer  to  settle  with  the  state  for 
$300,000  was  nevertheless  refused.  Thereupon, 
negotiations  were  dropped,  not  to  be  renewed 
until  1818.  Roger  Morris  had  then  been  some 
time  dead,  and  his  widow  was  advanced  in  years 
and  very  feeble.     Consequently,  it  was  evident 


48  GREAT    FORTUNES. 

that  the  ownership  of  their  former  estate  would 
soon  vest  in  the  purchaser  of  the  rights  of  suc- 
cession. The  matter  of  a  settlement  was  again 
agitated,  and  this  time  Astor  offered  to  take 
$300,000  with  interest  for  the  four  years  that 
had  elapsed  since  his  first  offer.  But  once  more 
he  met  with  a  refusal,  and  no  further  action  was 
taken  until  1827,  when  the  legislature  enacted  a 
law  which  provided  that  Astor  should  be  offered 
a  certain  price  for  his  claims,  if,  within  thirty 
days,  he  executed  a  deed  of  conveyance  in  fee  sim- 
ple to  the  state,  with  a  warranty  against  the 
claims  of  the  Morris  heirs.^^  However,  before  he 
could  receive  any  part  of  the  sum  agreed  upon, 
he  must  obtain  a  judgment  of  the  United  States 
Supreme  Court  in  favor  of  his  title. 

In  1830,  Astor's  claims  were  sustained  by  a  de- 
cision of  the  Supreme  Court  in  the  first  one  of 
five  suits,  which,  it  had  been  arranged,  should  be 
prosecuted  to  a  final  judgment.  It  had  also  been 
agreed  that,  if  three  of  these  suits  should  be  de- 
cided in  his  favor,  he  was  to  receive  from  the 
state  $450,000  in  payment  of  his  rights,  subject 
to  a  deduction  of  $200,000,  in  case  the  court  held 
that  buildings  and  improvements  did  not  go 
with  the  ownership  of  the  land  in  dispute.     In 

«7Mar7  Morris  had  died  before  this  last-named  date. 


JOHN   JACOB    ASTOR.  49 

June,  1830,  a  third  verdict  was  rendered  which 
meant  victory  for  Astor.  He  received  the  full 
amount  of  $450,000,  with  interest  from  April, 
1827,  for  a  property  which  by  that  time  had  at- 
tained a  valuation  of  $1,500,000.  The  sturdiness 
with  which  this  claim  was  pushed  to  a  successful 
issue  in  the  face  of  vituperation  shows  the  char- 
acter of  the  man.  Judging  from  such  evidence,  it 
would  certainly  seem  that  he  was  devoid  of  those 
non-commercial  and  extra-legal  standards  of 
right-dealing  which  hinder  many  men  in  their 
advance  toward  fortune.^ ^  The  incident  obvious- 
ly brings  out  traits  of  disposition  which  have  un- 
doubtedly been  important  factors  in  the  acquisi- 
tion of  wealth  by  individuals  such  as  he. 

During  the  War  of  1812  Astor  loaned  large 
sums  on  real  estate  security  and  had  numerous 
opportunities  to  foreclose  the  mortgages  thus  ac- 

48 In  one  of  the  early  suits  that  came  to  trial  in  the  United 
States  District  Court  for  the  Southern  District  of  New  York 
(Jackson  vs.  Carver,  1827,),  the  case  for  the  tenants  holding  under 
the  State  was  argued  by  Webster,  who  made  a  straight  appeal 
to  the  prejudices  of  his  hearers,  since  he  had  a  very  weak  legal 
defense.  "The  lands  to  be  affected  by  a  verdict  in  this  case  were 
held  as  a  patrimony  by  the  defendants.  They  had  purchased  them 
from  the  original  patentee;  they  had  labored  for  years  to 
improve  them.  The  rugged  hills  had  grown  green  under  their 
cultivation  before  a  question  was  raised  as  to  the  integrity  of 
their  titles.  They  have  grown  with  the  lands  around  them  and 
they  have  a  right  to  retain  them  until  a  legal  claimant  comes  to 
turn  them  out  of  possession.  And  unless  the  testimony  upon 
which  that  individual  founds  his  claim  is  as  clear  as  possible  it  is 
your  duty  to  reject  his  title  and  retain  the  lands  in  the  hands  in 
which  they  now  are." 


50  GREAT    FORTUNES. 

quired  under  conditions  most  favorable  to  him- 
self. Likewise,  during  the  panic  of  1837,  when 
real  estate  was  a  drug  on  the  market,  he  reaped 
an  unprecedented  harvest.  At  that  time  he  is 
said  to  have  appeared  as  a  complainant  in  some 
sixty  different  suits,  in  nearly  every  case  obtain- 
ing valuable  properties  at  absurdly  low  prices. 

But  it  was  not  only  during  periods  of  financial 
distress  that  Astor  secured  extraordinary  bar- 
gains. His  ability  to  diagnose  probable  future 
developments  enabled  him  at  all  times  to  buy  for 
insignificant  sums  unimproved  or  remote  prop- 
erties, which  later  came  to  be  valued  at  many 
times  the  prices  originally  paid  for  them.^^  For 
instance,  WilKam  Waldorf  Astor  says,  when 
speaking  of  his  great-grandfather's  investments 
in  real  estate : 

i9For  instance,  $3,000  is  said  to  have  been  the  purchase  price 
of  a  block  in  Harlem  worth  il<l,00{i,000  to-day.  Numerous  lots  on 
lower  Broadway,  bought  at  various  times  for  $200  or  $300,  are 
now  estimated  to  be  worth  from  $300,000  to  $400,000.  An  East 
Side  farm  that  cost  Astor  $20,000  has  a  present-day  valuation  of 
$8,000,000,  For  $7^^000  he  purchased  one-half  of  Governor 
Clinton's  Greenwich  estate.  Later  Clinton's  son-in-law  borrowed 
money  of  Astor  on  the  security  of  real  estate,  which  was  eventu- 
ally taken  over  by  the  latter  for  non-payment  of  debt.  Nearly 
two-thirds  of  the  Clinton  property  thus  came  into  possession  of 
the  Astor  family,  which  to-day,  it  is  estimated,  derives  a  yearly 
income  of  $500,000  from  the  buildings  erected  upon  it. 

These  details  are  taken  quite  uncritically  from  an  article  by 
Burton  Hendrick  in  McClnre's  Magazine,  April,  1905.  There 
seems  no  reason  for  doubting  their  substantial  truth,  however, 
and  they  gain  added  credence  in  the  light  of  the  statement  made 
by  William  Waldorf  Astor  in  an  article  in  the  Pall  Mall  Magazine, 
Vol.  XVIII. 


JOHN   JACOB   ASTOR.  51 

These  purchases  were  made  with  such  judgment  in  the  line 
of  approaching  expansion  as  frequently  to  be  sold  again  after  a 
few  years  for  double  or  treble  what  he  paid  for  them.  One  of 
these  farms  purchased  in  1811  for  $900  is  now  worth,  with  its 
improvements,  $1,400,000.50 

A  discussion  of  the  immense  gains  derived  by 
John  Jacob  Astor  from  land  investments  must 
not  lose  sight  of  the  fact  that  those  investments 
were  made  under  peculiarly  propitious  circum- 
stances. They  were  begun  when  the  land  was 
young  and  relatively  undeveloped,  and  they  per- 
sisted during  a  period  of  extraordinary  growth — 
a  period  during  which  New  York  was  assuming 
ever  greater  importance  as  the  commercial  center 
of  a  country  whose  trade  and  industry  were  ad- 
vancing by  leaps  and  bounds.  The  rapid  appre- 
ciation of  land-values  which  took  place  could 
hardly  have  occurred  in  an  older  community, 
where  conditions  are  more  stable  and  develop- 
ment progresses  at  a  steadier  pace.  Moreover, 
in  an  old  country  there  is  not  the  same  tendency 
to  sudden  shifts  of  the  commercial  centre  of  grav- 
ity, as  there  is  in  a  new  one,  whose  resources  are 
being  continually  developed,  and  whose  facilities 
for  transport  are  being  improved.  For  instance, 
the  completion  of  the  Erie  Canal  in  1825  at  once 
threw  a  large  part  of  the  western  trade,  which  had 

soPaH  Mall  Magazine,  Vol.  XVIII. 


52 


GREAT    FORTUNES. 


formerly  gone  through  Baltimore  and  Philadel- 
phia, toward  New  York;  and,  in  addition,  it  led 
to  an  increase  in  the  amount  of  products  carried, 
since  it  so  cheapened  the  cost  of  transportation  as 
to  bring  new  lands  toward  the  northwest  into  the 
market.^^  There  would,  of  course,  be  every  reason 
to  expect  a  rapid  augmentation  of  the  population, 
trade,  and  land  values  of  New  York  City,  as  a 
result  of  these  changes.  The  statistics  of  growth 
of  the  period  from  1820  to  1850  are  indeed  aston- 
ishing,^^ and  it  is  not  surprising,  in  the  hght  of 


5iAndrews,  Report  on  the  Colonial  and  Lake  Trade,  1852,  pp. 
275,  276. 

52 Statistics  showing  the  amount  of  the  imports  and  exports  of 
New  York  City  for  a  series  of  years  bear  excellent  witness  to  its 
unusual  growth  as  a  center  of  foreign  shipping,  and  these  statistics 
are  especially  significant  when  compared  with  the  figures  for 
Boston  and  Philadelphia,  noth  of  which  cities  at  one  time  excelled 
New  York  in  the  magnitude  of  their  foreign  shipments.  The 
value  of  the  imports  into  Boston,  Philadelphia,  and  New  York  for 
the  period  from  1820  to  1850,  are  as  follows: 

Boston.  Philadelphia.  New  York. 

1820     $8,150,000  $26,020,000 

1830     9,520,000  38,650,000 

1840     $14,820,000  8,460,000  60,060,000 

1850     28,650,000  12,060,000  116,660,000 

The  value  of  the  exports  are: 

Boston.  Philadelphia.  New  York. 

3820 $5,740,000  $11,760,000 

1830 4,290,000  17,660,000 

1840     $8,230,000  6,820,000  32,400,000 

1850     9,140,000  4,500,000  47,580,000 

The  population  of  the  citv  grew  during  this  period  from 
123,700  in  1820  to  515,300  in  1850. 


JOHN   JACOB    ASTOR.  53 

the  development  that  took  place,  that  John  Jacob 
Astor  who  began  to  invest  in  real  estate  in  1800, 
when  New  York  was  little  more  than  a  good- 
sized  town,  should  have  died  seized  of  holdings 
valued  at  from  $18,000,000  to  $20,000,000.'' 

In  conclusion,  it  should  be  said  that  informa- 
tion regarding  the  nature  and  extent  of  John 
Jacob  Astor's  real-estate  holdings  is  very  scanty, 
and  frequently  of  doubtful  authenticity.  The 
tax  records  of  New  York  City  throw  no  light  on 


statistics  showing  the  increase  in  value  of  the  real  and  per- 
sonal estate  held  within  New  York  City  are  as  follows: 

1824  $83,070,000 

1830  125,280,000 

1840  252,230,000 

1850  286,080,000 

These  figures  are,  however,  practically  worthless  for  purposes 
of  comparison,  as  the  methods  of  valuation  varied  widely  from 
year  to  year.  Moreover,  the  increase  in  the  extent  of  the  city 
lands  is  not  known,  and  consequently  there  are  no  means  of  esti- 
mating the  amount  of  the  "unearned  increment"  accruing  to  a 
fixed  area  during  this  period.  Then,  too,  personal  property  as 
well  as  realty  is  included  in  the  estimates.  Cf.  Andrews,  Report 
on  the  Colonial  and  Lake  Trade   (1852),  pp.  282-88. 

5  3 Having  acquired  an  immense  landed  estate,  it  was  no  part  of 
Astor's  purpose  to  make  all  the  improvements  upon  it  himself. 
He  frequently  rented  out  lands  for  twenty-one-year  periods  upon 
a  net  basis  of  5  or  6  per  cent.,  leaving  to  the  tenants  the  erection 
of  dwellings,  payment  of  taxes,  and  making  of  repairs,  the  build- 
ings and  other  improvements  to  become  the  property  of  the  owner 
of  the  land  upon  the  expiration  of  the  lease.  In  consequence  of 
the  hard  terms  exacted^  large  blocks  of  land,  it  is  said,  were  left 
vacant  or  else  covered  with  the  flimsiest  sort  of  structures.  Cf. 
Burton  Hendrick,  "The  Astor  Fortune,"  McClure's  Magazine, 
April,  1905. 


54  GREAT    FORTUNES. 

the  subject,^^  and  no  definite  knowledge  is  to  be 
got  from  a  study  of  Astor's  will,  since,  after 
making  various  minor  bequests,  chiefly  of  land, 
he  devises  the  rest  of  his  property  without  further 
specification  to  his  son,  William  B.  Astor.^'"'  De- 
tailed information  is  therefore  lamentably  lack- 
ing, but  the  facts  that  are  obtainable  will,  it  is 
thought,  prove  sufficient  to  furnish  material  for 
certain  broad  generalizations,  and  to  afford  the 
data  necessary  for  purposes  of  comparison  with 
other  phases  of  Astor's  activity. 

siThe  tax  records  of  the  city  of  New  York  give  no  information 
concerning  the  ownership  of  the  parcels  of  real  estate  assessed. 
The  president  of  the  Board  of  Tax  Commissioners  of  New  York 
City  (Borough  of  Manhattan)  thinks  that  the  only  way  to  obtain 
even  a  partial  knowledge  of  the  extent  of  the  real-estate  holdings 
of  John  Jacob  Astor  is  to  undertake  an  elaborate  search  through 
the  records  in  the  County  Register's  office. 

ssParton,  Life  of  John  Jaeob  Astor,  to  which  is  appended 
a  copy  of  his  will.  Tlie  only  investments  mentioned  in  the  will 
other  than  those  in  real  estate  are  as  follows:  $100,000  in  New 
York  City  5  per  cent,  bonds;  $50,000  in  New  Haven  5i/^  per  cent, 
bonds;  certain  sums  deposited  in  the  New  York  Life  Insurance 
and  Trust  Co.;  500  shares  of  the  capital  stock  of  the  Bank  of 
North  America;  1,000  shares  of  the  Manhattan  Co.;  1,000  shares 
of  the  capital  stock  of  the  Merchants'  Bank;  1,604  shares  of  the 
capital  stock  of  the  Mechanics  Bank.  These  scattered  items  are 
probably  of  no  great  significance  for  present  purposes. 


CHAPTER  III. 

THE  FORTUNE  OF  JAY  GOULD. 

I. 

TAY  GOULD  prefaced  his  speculative  activi- 
ties  by  a  short  probation  as  clerk  in  a  hard- 
ware store,  a  lengthier  experience  as  surveyor 
of  county  lands,  and  a  three  years'  career  as 
tanner  in  western  Pennsylvania/  In  this  last 
occupation  he  laid  the  first  slight  foundations 
of  his  subsequent  prosperity,  and  from  it 
he  derived,  in  part  at  least,  the  funds 
employed  in  his  early  speculative  ventures. 
It  is  not  altogether  clear  just  how  Gould 
succeeded  in  establishing  himself  in  the 
tanning  industry,  although  it  is  easy  enough  to 
see  how  he  might  have  acquired  some  knowledge 
of  the  business  as  he  explored  the  tanning  regions 
of  New  York  and  Pennsylvania  on  his  surveying 
expeditions.  At  any  rate,  he  somehow  managed 
to  secure  the  co-operation  of  a  wealthy  tanner, 
Colonel  Pratt,  of  Prattsville,  with  whose  assist- 
ance he  was  enabled  to  install  himself  as  head  of 


iFor  details  of  his  early  life,  cf.  an  article  on  Jay  Gould  in 
Sketches  of  Men  of  Progress,  (1870-71).  Cf.  also  "  Houghton, 
Kings  of  Fortune,  (1888).  Both  of  these  accounts  contain  mani- 
fest inaccuracies  and  conflicting  statements.  Cf.  also  articles  in 
the  New  York  Times  for  December  3,  1892, 


56  GREAT    FORTUNES. 

a  large  concern  in  western  Pennsylvania.  One 
writer  implies  that  the  alluring  prospects  of  gain 
afforded  by  that  untouched  western  region  were 
so  ably  presented  by  Gould,  that  Pratt  was  at 
once  induced  to  join  in  this  venture."  Another 
biographer  insinuates  that  a  timely  dose  of  flat- 
tery did  the  work.  He  states  that  Gould,  while 
editor  of  a  newspaper  for  a  short  time  in  1856, 
wrote  an  article  urging  Pratt's  nomination  to  the 
Vice-Presidency — to  the  great  delight  of  that 
unsophisticated  gentleman.  In  fact,  Pratt  was 
so  pleased  that  he  cheerfully  agreed  to  take  Gould 
with  him  to  western  Pennsjdvania,  where  he  pro- 
ceeded to  purchase  acres  of  forest  land,  and  to 
erect  a  tannery,  surrendering  to  Gould,  as  his 
partner,  full  charge  of  the  whole.^ 

However  chimerical  the  accounts  of  its  origin, 
the  tannery  was  actually  built,  and,  under 
Gould's  management,  was  soon  prospering.  The 
company  weathered  the  panic  of  1857,  and  two 
years  later  Gould  bought  out  Pratt's  interest 
in  the  business.  The  events  leading  up  to  this 
purchase  are  again  obscure.  It  has  been  said  (al- 
though such  unsubstantiated  statements  must  be 
taken  with  caution)  that  Pratt  became  convinced 
that  Gould  was  using  the  firm's  signature  for 

2Cf.  article  in  Sketches  of  Men  of  Progress. 

3Cf.  the  article  in  Houghton's  Kings  of  Fortune. 


JAY   GOULD.  57 

borrowing  sums  of  money,  which  were  not  used  in 
the  business.^  Pratt,  therefore,  gave  Gould  the 
option  of  buying  the  entire  tannery,  or  else  of 
selling  his  interest  in  it.  Thinking  Gould  unable 
to  effect  a  purchase,  Pratt  offered  to  dispose  of 
his  own  share  of  the  business  at  a  very  low  price. 
Gould  was  not  slow  to  seize  the  opportunity  of 
acquiring  such  a  bargain.  He  obtained  the  nec- 
essary funds  from  Charles  M.  Leupp  and  Com- 
pany, leather  dealers  of  New  York,  and  Leupp 
at  once  superseded  Pratt  as  his  partner  in  the 
tannery.  '  But  trouble  of  some  sort  speedily 
arose  between  the  new  partners.  There  was  a 
veritable  fight  for  possession  of  the  tannery.  The 
sheriff  and  his  posse  once  captured  the  place  dur- 
ing Gould's  absence,  but  the  latter,  nothing 
daunted,  called  together  his  employees  and  ousted 
the  invaders.^  Thus  early  in  Gould's  career,  it 
became  necessary  to  employ  military  phraseology 
in  describing  his  business  tactics.  Throughout 
his  life,  indeed,  he  displayed  a  fine  fighting  spirit, 
strengthened  by  the  conviction  that  "all  is  per- 
mitted" which  can  be  successfully  accomplished. 
But  whatever  the  rights  of  this  early  contest, 
Leupp  was,  at  any  rate,  vanquished,  and  he 
speedily  died  or  else  committed  suicide  as  a  result 

ilbid. 

sThe  New  York  Times,  December  3,  1892. 


i\ 


m 
I    ar 


58  GREAT    FORTUNES. 

of  his  business  losses.  Financial  embarrassments 
necessitated  keeping  the  tannery  closed  for  a 
time,  but  it  was  soon  reopened  with  Gould,  as 
sole  manager  and  proprietor,  employing  two 
undred  and  fifty  men  and  manufacturing 
1,500,000  pounds  of  sole  leather  annually. 

However,  the  tannery  proved  to  be  but  a  lever- 
age for  Gould's  later  speculative  operations.  At 
the  beginning  of  the  sixties,  railroad  securities 
were  greatly  depressed  in  value,  and  bankrupt 
roads  were  numerous.  Gould  hit  upon  the 
scheme  that  was  to  make  his  fortune.  He  aban- 
doned the  tannery,  and,  with  the  proceeds  from 
the  business,  together  with  borrowed  funds,  he 
began  to  invest  in  the  shares  of  bankrupt  compa- 
nies. Among  his  earliest  purchases  were  the 
ortgage  bonds  of  the  Rutland  and  Washington, 
and  the  Troy  and  Rutland  railroads.^  Not  only 
did  Gould  succeed  in  raising  above  par  the  bonds 
which  he  bought  at  10,  but,  according  to  his  own 
testimony,  he  actually  sold  some  of  the  stock  at 
125.^  In  less  than  two  years,  these  roads  were 
consolidated  with  the  Saratoga,  Whitehall  and 
Rensselaer,  whose  bonds  and  stocks  were  market- 
eer, article  in  the  New  York  Times,  December  3,  1892,  Gould's 
Eventful  Life;  also  account  in  Sketches  of  Men  of  Progress. 

7U.  S.  Pacific  Railway  Commission,  Senate  Executive  Docu- 
ments, .51  First  Session,  Fiftieth  Congress,  Testimony  of  Jay 
Gould,  Vol.  I,  p.  479. 


JAY   GOULD.  59 

ed  at  a  profit,  the  proceeds  being  used  to  purchase 
a  large  interest  in  the  Cleveland  and  Pittsburgh.^ 
Its  securities  were  likewise  disposed  of  later  at  an 
advance. 

By  this  time,  Gould  was  definitively  established  .^ 
as  a  broker,  doing  business  in  Wall  Street.  In 
1860,  he  had  become  acquainted  with  Henry  W. 
Smith,  and,  shortly  afterwards,  they,  together 
with  Henry  H.  Martin,  had  formed  the  broker- 
age firm  of  Smith,  Gould,  and  Martin.® 
Throughout  the  war,  the  partners  transacted  a 
lucrative  business  in  railway  securities,  and  also 
made  money  on  gold  speculations.  The  opera- 
tions in  gold,  begun  thus  early,  culminated  sev- 
eral years  later  in  the  spectacular  panic  of  Sep- 
tember 24,  1869— "Black  Friday"— the  outcome 
of  Gould's  attempt  to  corner  the  gold  market. 
The  premium  on  gold,  which  had  arisen  as  the  re- 
sult of  the  inconvertible  "greenback"  issues  occa- 
sioned by  the  war,  had  dropped  to  30  1-4  by 
March,  1869.  This  was  the  lowest  point  which 
had  been  reached  in  three  years,  and  there  were 
indications  that  the  quotations  might  go  still 
lower.  But  about  the  middle  of  April  Gould 
bought  seven  millions  of  gold  and  put  up  the  quo- 
tation from  132  to  140.    On  May  20,  the  quota- 

8 New  York    Times,  December  3,  1893,  Gould's  Eventful  Life. 
»New  York  Times,  December  3,  1892. 
6 


60  GREAT    FORTUNES. 

tion  was  144y8>  but  in  July  it  had  fallen  to 
136/^  Neither  then,  nor  later  in  his  career,  was 
Gould  desirous  of  trusting  to  the  luck  of  the 
market.  His  plans  had  been  laid  with  an  elab- 
orate caution,  and  he  was  resolved  to  guard 
against  all  untoward  events.  If,  for  instance,  the 
government  were  to  sell  gold  at  a  critical  junc- 
ture in  his  "bull"  campaign,  the  market  would  be 
spoiled  and  his  schemes  frustrated.  Gould  and 
his  able  ally,  Fisk,  took  occasion,  therefore,  to 
question  the  President  of  the  United  States  con- 
cerning his  views  on  the  propriety  of  advancing 
the  premium  on  gold.  The  time  selected  for  in- 
terrogation was  propitious,  as  Fisk  had  secured 
the  President  as  a  guest  on  board  his  yacht,  and 
had  exerted  his  lively  imagination  to  the  utmost 
to  afford  him  proper  entertainment.  However, 
his  adroit  inquiries  elicited  little  information;  the 
President's  attitude  was  noncommital,  not  to  say 
discouraging.^^ 

But  Gould  was  not  to  be  balked.    He  induced 
Corbin,  the  President's  brother-in-law,  to  mediate 


loReport  of  the  Committee  on  Banking  and  Currency  ap- 
pointed **to  investigate  the  causes  that  led  to  the  unusuaJ  and 
extraordinary  fluctuations  of  gold  in  the  city  of  New  York,  from 
the  21st  to  the  27th  of  September,  1869."  House  of  Representa- 
tives, Report  No.  31,  4lst  Congress,  2nd  Session,  p.  2. 

"House  Report,  No.  31,  p.  3.  Cf.  also  Henry  Adams,  The 
New  York  Gold  Gons'pimcy,  from  Chapters  of  Erie  and  Other 
Essaytf  p,  116, 


JAY   GOULD.  61 

in  his  interest,  and  he  secured  the  cooperation  of 
General  Butterfield,  Assistant  Treasurer  at  New 
York/^  According  to  Gould's  own  testimony, 
corroborated  by  the  stammering  and  conflicting 
statements  of  these  paid  agents,  he  bought  and 
carried  for  Corbin  about  two  millions,  and  for 
Butterfield,  about  a  million  and  a  half  of  gold. 
Butterfield  was  also  invited  to  join  him  in  pur- ' 
chasing  control  of  the  Tenth  National  Bank,  over 
half  of  whose  capital  stock  was  bought  August 
5,  1869,  as  preliminary  to  operations  on  the  Gold 
Exchange. ^^  Still  with  the  desire  of  ensuring  the 
success  of  his  plans,  Gould  caused  an  article  to 
be  published  in  the  New  York  Times,  purporting 
to  be  written  by  a  person  in  the  intimate  confi- 
dence of  the  President,  and  intending  to  convey 
the  idea  that  the  Administration  would  oppose  a 
sale  of  gold  in  the  interests  of  lower  prices.  ^^ 

^^The  New  York  Gold  Conspiracy,  p.  116. 

13  House  Report  31;  cf.  testimony  of  Gould,  pp.  151-54,  and 
160-61;  testimony  of  Butterfield,  pp.*314-28;  testimony  of  Corbin, 
pp.  353-57. 

14  House  Report  31,  p.  278. 

The  New  York  Times  refused  to  print  a  portion  of  the  article. 
The  excluded  part  read  as  follows: 

"It  may  be  objected  that  the  disbursement  of  currency  to  the 
largest  convenient  extent,  and  the  retention  in  the  Treasury  of 
unneeded  gold,  will  cause  gold  to  rise  again  to  135  or  140. 
Suppose  it  should  thus  result.  It  would  secure  large  shipments 
of  breadstuffs,  provisions,  butter,  cheese,  petroleum,  cotton, 
tobacco,  etc.,  at  increased  prices;  and,  to  the  amount  shipped, 
would  save  to  our  people  an  equal  value  of  gold.  Hence,  as  gold 
accumulated,  the  less  would  be  the  premium  upon  it;  high  prices 


62  GREAT    FORTUNES. 

Everything  was  done  to  inculcate  a  belief  that 
gold  ought  to  rise — that  the  premium  on  it  ought 
to  be  advanced  for  the  sake  of  the  oppressed 
farmer  whose  crops  could  then  be  brought  to 
market  and  disposed  of  at  higher  currency  prices. 
Nevertheless,  it  was  the  general  belief  among  im- 
porting merchants  that  gold  was  sure  to  fall. 
They  reasoned  that  an  unusually  large  cotton 
crop,  payment  of  interest  on  the  national  debt, 
and  other  causes  would  operate  to  keep  exchange 
in  favor  of  the  United  States  and  to  reduce  the 
premium  on  gold.^^  Consequently,  nearly  all  of 
the  large  importers  were  "short"  of  the  market. 
If  they  could  be  "cornered,"  Gould  would  be 
able  to  profit  at  the  expense  of  many  wealthy 
victims. 


for  gold  before  the  sale  of  our  products  would  cause  lower  prices 
of  gold  after  the  sale  of  exports.  It  is  better  for  our  country  to 
ship  produce  to  pay  for  our  imports  than  gold  or  bonds.  The 
objection  to  the  retention  of  gold  in  the  Treasury  until  our 
productions  are  marketed  is  unsound;  for  the  retention  of  gold 
will  make  both  gold  and  the  productions  dearer  at  the  time  of  the 
sale  of  the  productions;  if  gold  is  not  needed  for  shipment,  the 
premium  on  it  would  fall.  Large  exports  of  produce,  stimulated 
by  the  temporary  high  price  of  gold,  would  cause  gold  to  bear  a 
lower  price.  Hence,  a  high  price  for  gold,  during  the  next  three 
months,  would  be  productive  of  great  good  to  exporters  of  prod- 
uce. The  fall  of  gold  at  this  time  to  35  per  cent,  would  bring 
ruin  upon  the  agricultural,  manufacturing,  and  mechanical 
classes;  injury  to  these  would  entail  injury  upon  the  merchants 
and  upon  laborers.  If  gold  is  made  cheap,  it  will  be  exported; 
if  too  dear  to  export,  then  produce  will  be  shipped  in  lieu  of  it. 
Hence  government  will  not  so  act  as  to  lessen  the  value  of  this 
year's  abundant  crop,  but  will  labor  to  increase  its  value  and  pro- 
mote its  exportation  to   foreign  countries." 

isHouse  Report  31,  p.  332.    Testimony  of  Mr.  Opdyke. 


JAY   GOULD.  68 

Fisk  did  not  definitively  join  the  gold  clique 
till  the  middle  of  September,  when  he  became 
convinced  that  the  Administration  was  engaged 
in  speculation,  and  that  success  was  therefore  a 
"sure  thing."  It  is  an  interesting  fact  that  not 
even  to  a  man  so  intimately  associated  with  him 
as  was  risk,  did  Gould  divulge  the  real  state  of 
affairs.  The  reasons  for  his  habitual  secrecy 
frequently  became  painfully  apparent  in  the  se- 
quel. Then  it  was  seen  how  little  he  scrupled  to 
profit  at  the  expense  of  his  allies,  when  his  op- 
ponents were  getting  the  better  of  him. 

By  the  twenty-second  of  September  the  clique 
had  advanced  the  price  of  gold  to  140%.  Fisk 
says  they  had  then  contracted  for  fifty  or  sixty 
millions;  Gould  modestly  places  the  amount  at 
twenty-five  millions;  but  Smith,  his  partner, 
estimates  that  their  holdings  ranged  from  forty 
to  fifty-five  millions,  the  purchases  being  made 
by  fifty  or  sixty  brokers.  Until  the  twenty-third 
of  September,  the  business  was  done  through  the 
firm  of  Smith,  Gould,  and  Martin,  who  employed 
all  these  other  brokers. ^^  So  soon  as  the  clique 
bought  gold,  they  loaned  it  to  the  "bears,"  thus 
receiving  back  the  money  they  had  given  for  it, 
compelling  their  opponents  to  pay  them  interest 

^^Commercial  and  Financial  Chronicle,  Oct.  16,  1869,  Vol.  IX, 
p.  486. 


64  GREAT   FORTUNES. 

for  the  privilege  of  carrying  it,  and,  as  the  price 
advanced,  calling  up  margins,  with  which  to  pur- 
chase additional  sums.^^ 

Meantime  Gould  had  waxed  apprehensive.  He 
feared  Boutwell,  the  Secretary  of  the  Treasury, 
might  be  induced  to  sell  gold;  so  he  persuaded 
Corbin  to  write  the  President  a  letter  urging  non- 
interference by  the  government.  This  communi- 
cation reached  President  Grant  at  a  remote  spot, 
whither  he  had  gone  for  a  vacation,  the  messenger 
who  brought  it  showing  evidence  of  having  trav- 
eled in  haste.  Consequently,  suspicions  were 
aroused,  and  Corbin  was  warned  of  the  danger 
of  engaging  in  gold  speculations.  Thoroughly 
alarmed  at  the  result  of  his  communication,  Cor- 
bin reported  everything  to  Gould  and  demanded 
a  settlement.  The  latter  was  at  once  convinced 
that  the  game  was  up,  and  he  resolved  to  sell  out 
as  unostentatiously  and  as  expeditiously  as  pos- 
sible, leaving  Fisk  and  his  confreres  in  entire  ig- 
norance of  recent  developments.^^ 


^ilbid.,  p.  486. 

isCf.  Henry  Adams,  The  New  York  Gold  Conspiracy,  in 
Chapters  of  Erie  and  Other  Essays,  pp.  124-127;  also  House 
Report  31,  p.  13. 

C.  E.  Quincey,  clerk  for  William  Heath  and  Co.,  testified  to 
having  bought  over  $14,015,000  of  gold.  Between  September  11th 
and  September  19th,  he  sold  for  the  personal  account  of  Gould, 
$3,845,000;  sold,  delivered,  and  settled  for  Smith,  Gould,  and 
Martin,  the  balance  of  the  $14,015,000. 


JAY   GOULD.  65 

On  Thursday  gold  closed  at  144,  the  clique  hav- 
ing calls  for  over  one  hundred  millions.  There 
were  not  more  than  fifteen  millions  of  gold  and 
certificates  in  New  York,  outside  the  Sub-Treas- 
ury, and  at  least  two  hundred  and  fifty  firms, 
many  of  them  leading  banking  and  mercantile 
houses,  were  short  of  the  market.  In  the  midst 
of  the  prevailing  excitement,  Gould  continued  to 
buy  small  amounts,  merely  to  keep  up  appear- 
ances, while  selHng  all  the  time  through  agents 
to  the  very  brokers  who  thought  they  were  pur- 
chasing in  his  interest.  William  Belden,  the  tool 
of  his  machinations,  gave  unlimited  orders,  re- 
ferring to  Fisk  and  to  Smith,  Gould,  and  Martin, 
as  his  principals. ^^  Moreover,  Albert  Speyers, 
convinced  that  Belden  was  broker  for  the  whole 
party,  was  induced  to  buy  on  behalf  of  the  lat- 
ter. Before  noon  of  the  eventful  Friday,  Speyers 
had  purchased  nearly  sixty  millions  of  gold,  and 
Belden  did  not  even  know  how  much  had  been 
bought  in  his  name.  At  the  height  of  the  hyster- 
ical confusion  precipitated  by  all  this  reckless 
buying,  James  Brown,  a  banker,  who  was  leading 
in  the  "bear"  interest  those  men  whose  legitimate 
business  required  the  purchase  of  gold,  offered  a 
milKon  at  162.       Doubt  seized  his  opponents; 

isHouse  Report  31,  pp.  12,  13. 


66  GREAT    FORTUNES. 

there  were  no  takers.  Then  the  same  amount  was 
offered  at  161 ;  finally,  five  millions  at  160.  There- 
upon the  market  broke,  and  ten  minutes  later 
came  the  news  that  the  government  had  ordered 
General  Butterfield  to  sell  four  millions  of  gold, 
and  to  purchase  four  millions  of  bonds. ^^  Upon 
the  receipt  of  that  information,  the  price  plunged 
downward  to  133.  The  "corner"  had  so  little 
basis  in  reality,  that  it  had  succumbed  without 
perceptible  delay  to  the  shock  occasioned  by  this 
slight  blow. 

It  is  not  possible  to  say  just  how  much  was 
won  or  lost  as  a  result  of  this  attempt  to  "cor- 
ner" gold.  James  B.  Hodgskin,  testifying  be- 
fore the  House  Committee  which  investigated  the 
causes  of  the  panic,  estimated  that  the  chque  profit 
was  $12,000,000.^^  This  estimate  was  based  on 
private  statements  made  by  brokers  the  day  of 
the  panic.  Had  the  Friday  transactions  been 
settled,  Hodgskin  thought  that  at  least  twenty 
millions  would  have  been  lost.  Gould  had,  in- 
deed, nominally  fulfilled  all  his  contracts,  since 
he  had  been  consistently  selhng  and  making  set- 
tlements at  the  prevailing  liigh  prices.    However, 

2oGould  was  undoubtedly  anticipating  such  action  on  the 
part  of  the  government.  National  bank  examiners  had  pre- 
viously descended  upon  the  Tenth  National  Bank,  and  destroyed 
its  usefulness  by  preventing  further  certifications  of  brokers'  checks. 

2iHouse  Report  31;  testimony  of  James  B.  Hodgskin,  p.  39. 


JAY    GOULD.  67 

he  had  permitted  Fisk  to  go  on  buying,  and  had 
deliberately  fostered  the  idea  that  they  were  act- 
ing in  concert.  Thereby  Fisk  and  his  brokers 
became  the  victims  through  whose  agency  Gould 
was  enabled  to  unload  his  holdings. ^^  However, 
the  victimized  ones  did  not  suffer  greatly.  Fisk 
cheerfully  repudiated  the  seventy  millions  of  pur- 
chases made  by  Belden,  denying  that  the  latter 
had  bought  in  his  interest.  In  fact,  Fisk  even 
produced  a  letter  purporting  to  be  from  Belden, 
telling  him  to  purchase  and  sell  gold  on  his  (Bel- 
den's)  account.^^  Thus  the  latter  was  made  the 
scapegoat  of  the  whole  affair,  but,  as  his  acqui- 
escence in  this  role  was  no  doubt  liberally  reward- 
ed, he  is  scarcely  deserving  of  sympathy.  On 
September  27th,  Gould  and  Fisk,  as  sole  answer 
to  insistent  demands  for  settlement,  obtained 
twelve  injunctions  and  judicial  orders  of  various 
sorts.  Thereby  they  placed  the  gold  clearing 
house  in  the  hands  of  receivers,  restrained  its  offi- 
cers from  making  settlements  except  on  order  of 
the  courts,  and  prevented  the  officers  of  the  Gold 
Exchange  from  enforcing  against  the  chque  rules 
to  compel  settlement. 

2 2 Whether  Fisk  remained  in  ignorance  of  Gould's  plans  until 
the  very  end,  or  whether  they  entered  into  some  agreement  prior 
to  the  day  of  the  panic,  is  uncertain ;  cf.,  however,  the  Commercial 
and  Financial  Chronicle,  Oct.  1869,  p.  486. 

23Cf.  House  Report  31;  testimony  of  Belden,  p.  301. 


68  GREAT   FORTUNES. 

Fisk's  testimony  before  the  House  Committee, 
which  investigated  the  occurrences  leading  up  to 
"Black  Friday,"  is  extremely  amusing. 

The  whole  movement  was  based  upon  a  desire  on  our  part  to 
employ  our  men,  and  work  our  power,  getting  the  surplus  crops 
moved  east,  and  receiving  for  ourselves  that  portion  of  the  trans- 
portation properly  belonging  to  our  road  (i.  e.,  the  Erie).  That 
was  the  beginning  of  the  movement,  and  the  further  operations 
were  based  upon  a  promise  of  what  Corbin  said  the  government 

would  do My   transactions   were  merely  to   support   the   gold 

market,  without  any  understanding  that  there  was  to  be  any 
corner;  without  any  understanding  whatever,  of  any  name  oi 
nature,  further  than  to  assist  Mr.  Gould  in  this  transaction.  He 
had  started  out  with  the  view  of  giving  work  for  our  men  and 
our  power  during  the  fall  and  winter.  2  4 

Thus  was  a  desire  to  profit  the  Erie, 
through  the  increased  freightage  that  sup- 
posedly would  come  with  high  prices  of  agri- 
cultural products,  alleged  to  be  responsible  for 
the  whole  movement.  And,  no  doubt,  the  Erie 
was  a  very  efiicient  cause  of  these  operations,  in 
that  its  obhging  Treasury  was  always  at  the  dis- 
posal of  Gould  and  Fisk.  For  that  matter,  they 
would  have  been  quite  capable  of  maintaining 
that  to  use  its  funds  in  such  a  cause  was  to  ex- 
pend them  legitimately  in  the  interests  of  the 
road.  But  however  altruistic  their  professed  mo- 
tives, their  machinations  resulted  in  a  severe 
financial  crisis.  Not  only  speculators  suffered 
from  their  attempts  to  "corner"  gold,  but  the 

2«House  Report  31,  p.  176. 


JAY   GOULD.  69 

mercantile  classes  also  lost  heavily,  as  a  result  of 
the  extraordinary  monetary  derangement  that 
ensued. 

The  history  of  Gould's  connection  with  the 
Erie  dates  back  several  years  prior  to  his  specu- 
lations in  gold.  His  attention  was  first  called  to 
this  road  by  Daniel  Drew,^^  the  great  "bear" 
operator,  who  was  one  of  the  customers  of  Smith, 
Gould,  and  Martin.  Drew  induced  Gould  to  join 
in  the  fight  against  Vanderbilt,  who  was  making 
desperate  efforts  to  secure  the  Erie.  Indeed, 
Vanderbilt  was  determined  to  get  possession  of 
this,  the  only  great  Hne  of  railroad  save  his  own, 
which  crossed  the  state  of  New  York.  Early  in 
1868,  therefore,  he  started  out  to  buy  control, 
and,  astute  man  though  he  was,  he  was  deluded 
into  believing  that  he  had  succeeded.  But  he  had 
reckoned  without  the  resourceful  Drew  and  his 
clever  associates.  At  a  most  critical  juncture, 
the  Executive  Committee  of  the  Erie,  of  which 
Drew,  Fisk,  and  Gould  were  all  members,  au- 
thorized an  issue  of  ten  millions  of  convertible 
bonds.  These  bonds  were  placed  on  the  market 
in  two  installments.  They  were  immediately 
bought  in  by  the  men  in  control  of  the  Erie  man- 
agement,   and    were    forthwith    converted    into 

25 New  York  Times,  December  3,  1892. 


4- 


70  GREAT    FORTUNES. 

stock,  which  was  offered  for  sale  to  Vanderbilt's 
unsuspecting  agents.  Down  went  the  stock  quo- 
tations, as  soon  as  it  became  known  that  the  mar- 
ket had  been  flooded  with  these  new  issues.  Van- 
derbilt  was  forced  to  keep  buying  in  a  vain  effort 
to  protect  holdings  previously  bought  at  high 
prices.  His  losses  were  heavy ;  Drew  and  his  fel- 
low directors  were  triumphant.^^  Nevertheless, 
the  victorious  party  had  to  flee  to  New  Jersey  to 
avoid  processes  of  contempt  for  having  disobeyed 
an  injunction  not  to  convert  the  second  install- 
ment of  bonds  into  stock. 

However,  Drew  soon  tired  of  loitering  in  New 
Jersey,  and  after  the  Albany  legislature  had 
passed  a  bill  forbidding  any  connection  between 
the  Erie  and  the  New  York  Central  (May, 
1868),^^  both  Vanderbilt  and  he  were  prepared 
to  come  to  terms.  The  settlement,  as  agreed 
upon,  provided  that  Vanderbilt  was  to  be  re- 
lieved of  50,000  shares  of  the  Erie  at  70,  receiving 
in  payment  $2,500,000  in  cash,  and  $1,250,000  in 
bonds  of  the  Boston,  Hartford  and  Erie  at  80. 
Further,  he  was  to  receive  $1,000,000  as  a  consid- 
eration for  the  privilege  of  calhng  for  his  remain- 

26Cf.  Charles  Francis  Adams,  A  Chapter  of  Erie,  in  Chap- 
ters of  Erie  and  Other  Essays,  pp.  29,  30. 

27 Commercial  and  Financial  Chronicle,  May  9,  1868,  Vol.  VI, 
p.  587.  Cf.  A  Chapter  of  Erie,  pp.  48-56,  for  a  description  of 
the  part  played  by  Gould  in  securing  the  passage  of  this  bill. 


JAY   GOULD.  71 

ing  50,000  shares  of  stock  at  70,  any  time  within 
the  following  four  months.  He  was  also  to  have 
two  seats  on  the  Erie  directorate  placed  at  his 
disposal.  Drew,  for  his  part,  was  to  pay  into  the 
Treasury  of  the  Erie  $540,000  with  interest,  as  an 
indemnity  for  his  peculations  while  Treasurer  of 
the  road.  Otherwise,  he  was  left  in  undisturbed 
possession  of  the  gains  made  out  of  his  recent  ex- 
traordinary operations  in  the  stock  market.^^ 

Drew  now  abdicated  his  position  as  Treasurer 
of  the  Erie,  and  Gould  and  Fisk  were  left  in  a 
position  of  unbridled  control.  During  the  period 
from  July  1st,  1868,  to  October  24th  of  that  year 
the  stock  of  the  road  was  increased  from  $34,- 
265,300  to  $57,766,300—235,000  shares  in  all. 
Stock  quotations  fell  rapidly  and  soon  sales  were 
being  made  at  35.  This  steady  stream  of  new  is- 
sues (made  possible  under  the  elastic  provisions 
concerning  convertible  bonds),  so  completely  de- 
moralized the  stock  market,  and  placed  so  large 
an  amount  of  the  loanable  funds  of  the  commun- 
ity in  the  hands  of  a  few  speculators,  that  the 
government  was  forced  to  promise  to  relieve  the 
stringency,  if  necessary.^^ 

28^  Chapter  of  Erie,  p.  59.  Cf.  The  Commercial  and  Finan- 
cial Chronicle  for  notices  appearing  at  intervals  during  the  pro- 
gress of  the  contest. 

^^Commercial  and  Financial  Chronicle,  Nov.  14,  1868,  Vol. 
VII,  The  Wall  Street  Crisis. 


72  GREAT    FORTUNES. 

Meanwhile,  Daniel  Drew  was  engaged  in  his 
usual  "bearing"  operations,  having  contracted  to 
deliver  70,000  shares  of  Erie  at  38  in  the  follow- 
ing November.  The  chance  of  "cornering"  Drew 
was  too  good  to  be  missed,  and  Gould,  together 
with  his  erratic  running  mate,  resolved  to  make 
the  most  of  it.  From  having  worked  for  a  fall, 
they  reversed  their  plans  with  a  bewildering  sud- 
denness, and  began  to  "boom"  the  depressed 
stock  of  their  road.  The  task  was  not  difficult, 
since  the  treasury  of  the  Erie  was  at  their  dis- 
posal, and  its  funds  could  be  used  in  making  un- 
Umited  purchases.  Drew,  in  desperation  at  see- 
ing the  stock  slowly  rising,  resolved  to  bring  suit 
against  the  management.  On  his  affidavit,  a 
complaint  was  filed  by  Belmont  and  others 
against  the  Erie  Railway  Company.  It  was 
urged  that  the  parties  in  control  of  the  road  had 
secured  their  position  by  offering  President  El- 
dridge  special  inducements  to  resign,  purchasing 
from  him,  at  80,  $5,000,000  of  bonds  of  the  Bos- 
ton, Hartford,  and  Erie,  in  which  he  was  largely 
interested.  Moreover,  it  was  charged  that  Gould 
had  used  several  millions  of  the  funds  of  the  com- 
pany in  purchasing  stock  and  proxies  prior  to  the 
October  election.  Finally,  it  was  stated  that, 
since  the  election,  additional  stock  issues  to  the 
amount  of  $23,000,000  had  been  put  forth,  and 


JAY   GOULD.  78 

the  money  arising  from  the  sales  had  been  used 
by  the  managers  to  further  their  stock  specula- 
tion.^^ 

In  anticipation  of  this  suit,  Gould  and  Fisk 
forestalled  the  application  for  a  receivership, 
which  accompanied  it,  and  induced  Judge  Bar- 
nard, who  was  always  at  their  service,  to  appoint 
Gould  receiver  for  the  road.  The  latter  was  even 
empowered  to  use  his  discretion  in  buying  up,  at 
any  price  below  par,  200,000  shares  of  stock, 
the  legality  of  whose  issue  had  been  quite  properly 
questioned.  These  shares,  issued  under  the  "con- 
vertible bond"  provisions,  had  been  marketed  at 
40,  and  were  then  selling  at  35.^^  The  price  of 
the  Erie  stock  rose  rapidly,  when  it  became 
known  that  the  money  in  the  treasury  was  being 
squandered  upon  its  purchase.  Drew  fought  des- 
perately, although  his  destruction  appeared  in- 
evitable. However,  at  the  very  moment  when  it 
seemed  certain  that  Gould  and  Fisk  had  cornered 
the  market,  large  amounts  of  stock,  supposed  to 
be  out  of  the  country,  were  offered  for  sale.  If 
the  corner  were  to  succeed,  Gould  and  Fisk  must 
take  all  that  was  offered.    For  some  reason,  they 


^oCommercial  and  Financial  Chronicle,  November  14,  1868,  Vol. 
VTI,  p.  648. 

siCharles   Francis   Adams,   A    Chapter  of   Erie,   in   Chapters 
of  Erie  and  Other  Essays,  p.  73. 


74  GREAT    FORTUNES. 

failed.  Drew  made  good  his  contracts  at  57,  and 
the  stock  fell  speedily  to  42. 

Both  sides  lost  heavily,  but  Gould  was  still 
intrenched  in  the  Erie.  A  suit  was  now  com- 
menced against  Belmont  and  others  for  the  pur- 
pose of  showing  that  the  suit  recently  instituted 
by  the  latter  was  not  brought  in  good  faith.  More- 
over, Gould's  position  was  further  strengthened 
through  the  action  of  a  complacent  judge,  Blatch- 
ford  by  name.  On  the  petition  of  a  holder  of  re- 
cently issued  stock,  who  "feared  that  the  issue 
might  be  declared  illegal,"  this  magistrate  direct- 
ed $8,000,000  of  the  money  of  the  company  to  be 
placed  in  the  hands  of  the  receiver  (Gould),  as  a 
protection  to  the  holders  of  such  stock. ^^ 

About  this  time  Gould  was  confronted  by  a 
rival  receiver,  appointed  by  a  hostile  judge.  But 
Fisk  and  he  fortified  themselves  within  their 
headquarters,  and,  in  the  face  of  conflicting  judi- 
cial orders,  managed  to  maintain  their  hold  on 
the  Erie.  Eventually  their  opponents  gave  up 
the  hopeless  contest;  truce  was  established;  and 
Gould  was  left  to  enjoy  his  receivership.  When 
that  was  vacated,  he  once  more  assumed  the  Pres- 
idency of  the  road,  from  which  position  he  was 
not  deposed  till  March,  1872.    Even  then  he  re- 

s2Commercial  and  Financial  Chronicle,  November  21,  1868,  Vol. 
VII,  pp.  647,  648,  677. 


JAY   GOULD.  75 

mained  director  of  the  road  for  a  time,  and  it  was 
reported  that  his  loss  of  position  was  solaced  by 
a  gift  of  $1,000,000,  in  repayment  of  advances 
and  loans  negotiated  entirely  on  his  own  respon- 
sibiHty.^^ 

During  the  period  of  his  administration,  the 
capital  stock  of  the  road  had  been  increased  $61,- 
425,700,  and  the  "construction"  account  had  risen 
from  $49,247,700  in  1867  to  $108,807,687.^* 
Stock  to  the  amount  of  $40,700,000  had  been 
marketed  by  the  firm  of  Smith,  Gould,  and  Mar- 
tin, and,  incredible  as  it  may  seem,  its  sale  had 
netted  the  company  only  $12,803,059.  In  the 
face  of  such  proceedings,  it  is  small  wonder  that 
the  Erie  was  left  to  fall  into  a  state  of  chronic 
bankruptcy,  and  to  operate  as  a  disturbing  fac- 
tor in  the  railroad  world  down  to  the  present  day. 

Yet,  after  all,  the  movement  to  oust  Gould 


s^Commercial  and  Financial  Chronicle^  March  16,  1872,  Vol. 
XIV,  p.  342. 

34The  New  York  Times,  December  3,  1892. 

Testimony  was  taken  by  the  Hepburn  Committee,  in  1879,  Vol. 
v.,  p.  18,  to  the  effect  that  the  road  and  equipment  of  the  Erie 
could  be  replaced  for  about  $40,000,000.  It  was  also  stated  that 
the  company's  report  to  the  State  Engineer  in  1873  showed  under 
the  head  of  "construction  account,"  $4-7,000,000,  representing  a 
"discount  on  the  sale  of  convertible  bonds."  It  is  also  interesting 
to  know  that  "legal  expenses"  of  more  than  $890,000  were  charged 
lo  the  construction  account  in  1870.  The  witness  furnishing  this 
testimony  had  just  been  employed  in  taking  an  inventory  of  the 
road,  and  he  had  come  to  the  conclusion  "that  the  construction 
account  not  only  covers  the  proper  cost  of  the  road,  but,  like 
charity,  it  covers  a  multitude  of  sins." 


76  GREAT    FORTUNES. 

does  not  appear  to  have  been  the  result  of  any 
aroused  public  sentiment.  In  fact,  the  public 
mind  was  firmly  fixed  on  the  desirability  of  pre- 
venting a  coalition  between  the  Erie  and  the  New 
York  Central.  Gould  even  posed  in  the  light 
of  a  public  benefactor — the  friend  of  the  people 
and  of  the  shipping  public.  He  was  the  man  who 
had  circumvented  the  formation  of  a  great  mon- 
opoly. Just  so  had  he  been  the  disinterested 
friend  of  the  farmer  during  his  campaign  to 
"bull"  the  gold  market. 

The  effective  opposition  to  the  Gould  manage- 
ment came  seemingly  from  a  group  of  specula- 
tive English  holders  of  the  Erie  stock,  who  hoped 
to  profit  by  the  rise  sure  to  follow  his  deposi- 
tion.^^ Having  succeeded  in  dislodging  Gould 
from  the  Presidency,  his  opponents  proceeded  to 
take  further  measures.  In  July,  1872,  suit  was 
brought  against  him  in  the  Court  of  Conmion 
Pleas  (New  York),  to  recover  a  sum  of  nearly 
$10,000,000,  said  to  have  been  misappropriated 
by  him,  while  an  officer  of  the  company.  At  the 
election  held  in  the  same  month  under  an  act  of 
the  New  York  Assembly,  his  connection  with  the 
company  was  entirely  severed.^^  The  following 
December,   Gould  undertook  to  convey  to  the 

^^Commercial  and  Financial  Chronicle,  March  30,  1879,  Vol, 
XIV,  p.  406. 


JAY   GOULD.  77 

Erie  real  estate  and  securities,  having  a  (nom- 
inal) value  of  $9,086,000,  in  settlement  of  the 
claims  against  him.^^  Naturally,  the  stock  rose 
when  Gould's  intentions  became  known,  and  sus- 
piciously large  amounts  were  offered  for  sale. 
Then  came  a  distressing  slump,  when  it  began  to 
be  rumored  that  Gould's  restitution  had  been 
largely  a  restitution  in  name.  There  was  room  for 
believing  that  he  had  again  profited  by  his  own 
misdeeds — that  "buying  at  the  bottom  (he)  had 
sold  twice  as  much  at  the  top,"  and  had  fulfilled 
his  contracts  after  the  drop  in  prices.  It  was  es- 
timated that  he  acquired  several  milhons  as  the 
result  of  this,  his  farewell  operation  in  Erie 

stocks. 

II. 

The  West  has  always  been  the  great  field  for 
the  speculator.  It  is  the  land  of  big  enterprises 
prematurely  developed — a  land  in  which  the 
pioneers  in  investment  are  not  so  apt  to  profit, 
as  to  lay  the  foundations  of  a  fortune  for 
their  immediate  successors.  At  the  period  when 
Gould  severed  his  relations  with  the  Erie,  the 
railroads  of  the  West  had  just  come  into  being, 
under  the  impetus  of  state  and  national  loans  and 


3«/6Mf.,  July,  1872. 

^"f Commercial  and  Financial  Chronicle,  December  21,  1872,  Vol. 
XV,  p.  830,    New  York  Timet,  Pecepiber  3,  J893, 


78  GREAT    FORTUNES. 

land  grants.  Needless  to  say,  some  of  their  pro- 
moters had  already  become  involved  in  difficul- 
ties. The  Union  Pacific,  for  example,  was  in 
hard  straits.  It  had  been  built  "when  the  price 
of  labor  and  material  was  extremely  high,  gov- 
ernment bonds  at  a  discount,  gold  at  a  premium, 
the  national  currency  inflated,"  and  no  other 
road  within  one  hundred  miles.^^  Moreover,  the 
method  of  financing  its  construction  had  been 
peculiar,  and,  when  completed,  it  was  saddled 
with  interest  payments  on  $27,000,000  first  mort- 
gage bonds,  $27,000,000  government  bonds,  $10,- 
000,000  income  bonds,  $10,000,000  land  grant 
bonds,  and,  if  anything  were  left,  dividend  pay- 
ments on  $36,000,000  of  stock.  Surely,  the  fu- 
ture did  not  appear  altogether  bright,  and  the 
disclosures  connected  with  the  Credit  Mobilier 
Company^^ — the  disgrace  and  death  of  Oakes 
Ames — ^were  further  demoralizing  to  the  good  re- 
pute of  the  road.  Following  these  revelations, 
the  Ames'  stockholdings  were  thrown  on  the 
market  for  what  they  would  bring.  Gould  was 
not  slow  to  take  advantage  of  this  favorable  op- 
portunity to  invest,  and  the  purchases  then  made 
laid  the  basis  of  his  subsequent  large  interests  in 

38 John  P.  Davis,  The  Union  Pacific  Railway  (1894),  p.  173. 
ssCredit  Mobilier  Investigation,  House  Report,  No.  78,  42nd 
Congress,  3rd  Session,  Feb.  18,  1873, 


JAY   GOULD.  79 

the  Union  Pacific. ^^  In  the  previous  year,  a 
coterie  headed  by  Vanderbilt's  son-in-law,  Hor- 
ace F.  Clark,  had  purchased  control  of  the  road,^^ 
with  a  view  to  throwing  its  traffic  over  the  New 
York  Central  lines.  However,  Clark's  death  in 
1873  caused  his  holdings  to  be  offered  for  sale, 
and  they  were  bought  in  by  Gould  at  35.  Dur- 
ing this  year  alone  Gould  obtained  100,000  shares 
of  Union  Pacific  stock,  doubling  his  holdings  in 
the  course  of  the  next  five  years. 

Unhappily,  the  road  was  overburdened  with 
debt ;  the  outlook  was  unpromising,  and  the  price 
of  the  stock  soon  fell  to  14.  Something  must  be 
done  to  rehabilitate  it,  or,  at  any  rate,  to  make 
its  stock  salable.  As  the  surest  means  to  this 
end,  Gould  advocated  the  pohcy  of  liberal  divi- 
dend payments.  From  July,  1875,  to  January, 
1880,  dividends  to  the  amount  of  $11,900,000 
were  disbursed.^^  The  business  of  the  road  had 
increased,  to  be  sure,  rising  from  $7,600,000  in 
1870  to  $13,200,000  in  1880,  while  the  operating 
expenses  had  decreased  from  61.34  per  cent,  of 
the  gross  earnings  to  41.48  per  cent.    However, 


40 Pacific  Railway  Commission;  testimony  of  Charles  Francis 
Adams,  Vol.  1,  p.  71. 

4iHenrv  K.  White,  History  of  the  Union  Pacific  Railway 
(189o),  p.*  55. 

Cf.  Poor's  Manual  of  Railroads  for  list  of  directors. 

42 White,  History  of  the  Union  Pacific  Railway,  p.  60. 


80  GREAT    FORTUNES. 

items  were  charged  to  the  construction  account, 
which  should  have  been  accredited  to  operating 
expenses,  while,  at  the  same  time,  the  unusually 
high  passenger  and  freight  rates  that  prevailed 
during  the  period,  helped  to  swell  the  gross  earn- 
ings/^ Moreover,  the  interest  on  the  debt,  ac- 
cruing to  the  United  States,  was  excluded  from 
the  income  account,  in  accordance  with  a  decision 
of  the  courts  that  such  interest  was  not  payable 
until  the  maturity  of  the  bonds.  Nevertheless, 
a  failure  to  provide  for  these  interest  payments 
meant  eventual  bankruptcy  for  the  Union  Pa- 
cific. Meantime,  dividend  payments  raised  the 
price  of  the  stock,  and  enabled  Gould  gradually 
to  dispose  of  his  holdings,  until,  by  the  end  of 
1879,  he  owned  but  27,000  shares,  out  of  a  for- 
mer maximum  of  200,000.^* 

As  he  withdrew  from  the  Union  Pacific,  Gould 
began  to  invest  in  various  bankrupt  roads,  of  no 
importance  in  themselves,  but  valuable  in  that 
they  enabled  him  to  levy  tribute  on  the  Union  Pa- 
cific. His  connection  with  the  Kansas  Pacific 
and  the  Denver  Pacific  dates  from  1875.  Both 
companies  were  insolvent,  and  the  value  attach- 

48Report  of  the  Pacific  Railway  Commission,  p.  58. 

**Paciflc  Railway  Commission;  testimony  of  Addison  Cam- 
mack,  Vol.  I,  p.  9S1.  He  states  that  Gould  sold  to  a  syndicate 
70,000  shares  of  stock  of  the  Union  Pacific  some  time  before 
March,  1879,  the  price  of  the  sale  being  between  65  and  70. 


JAY   GOULD.  81 

ing  to  the  Denver  Pacific  stock  was  altogether 
contingent  upon  the  value  that  Gould  might  be 
able  to  infuse  into  the  Kansas  Pacific  securities 
(the  Denver  Pacific  being  the  connecting  link 
between  the  Union  Pacific  and  the  Kansas  Pa- 
cific). In  1877,  the  Kansas  Pacific,  in  an  en- 
deavor to  prevent  foreclosure,  issued  a  funded 
mortgage  of  $15,000,000.  At  the  time,  it  held 
over  29,000  shares  of  the  stock  of  the  Denver 
Pacific,  received  in  payment  of  advances  made  to 
the  latter  road.  This  stock  was  therefore  used  as 
part  security  for  the  funding  bonds.  The  des- 
perate condition  of  the  road  enabled  Gould  and 
his  Union  Pacific  confreres  to  purchase  largely 
of  its  securities  at  very  low  prices,  and,  by  1879, 
Gould  himself  had  attained  to  a  position  of  con- 
trol. 

He  now  disclosed  to  the  astonished  directors 
of  the  Union  Pacific  a  plan  he  had  matured  for 
effecting  the  consolidation  of  the  Union  Pacific, 
Kansas  Pacific,  and  Denver  Pacific  roads — the 
stock  of  all  these  companies  to  be  exchanged 
share  for  share  for  stock  of  the  new  combined 
organization.  By  means  of  judicious  dividend 
payments,  the  stock  of  the  Union  Pacific  had  ac- 
quired a  very  fair  reputation  as  an  investment  se- 
curity, and  the  indignant  directors  (who  hap- 
pened to  be  more  largely  interested  in  the  Union 


82  GREAT    FORTUNES. 

Pacific  than  in  either  of  the  other  roads)  prompt- 
ly rejected  the  proposition.^^ 

Gould,  without  more  ado,  went  to  Kansas, 
bought  up  the  Missouri  Pacific,  which  extended 
from  St.  Louis  to  Kansas  City,  for  $3,000,000, 
and,  as  part  of  the  transaction,  purchased  a  con- 
trolHng  interest  in  the  Kansas  Central.  His 
method  of  obtaining  the  Missouri  Pacific  was 
characteristic.  He  simply  threatened  to  build 
the  Kansas  Pacific  as  far  east  as  the  Missouri 
Pacific  built  west,  at  the  same  time  accompanying 
the  threat  with  an  offer  to  purchase.^^  A  few 
days  prior  to  this  transaction,  Gould  had  ob- 

4  r.  Report  of  the  Pacific  Railway  Commission,  Vol.  I,  p.  58. 
The  relative  standing  of  the  three  companies  is  shown  as  follows: 

Annual  net  Annual  net 

earnings  per  mile,  interest  per  mile, 

1870-80.  1870-80. 

Union   Pacific    $5,616.66  $3,185.39 

Kansas   Pacific    1,601.77  2,294.71 

Denver   Pacific    1,322.70  1,794.89 

The  stock  held  by  Gould  and  other  Union  Pacific  directors  in 
the  Kansas  Pacific  at  the  time  of  the  consolidation: 

Jay  Gould  $4,000,000 

F.  G.  Dexter   125,700 

E.  H.  Baker    27,400 

Russell  Sage 443,000 

Elisha   Atkins    45,600 

F.  L.  Ames   179,600 

Sidney   DiUon    305,900 

All  of  these  men  held  large  amounts  of  the  consolidated  bonds 
and  other  securities  of  the  Kansas  Pacific  and  branch  lines. 

46White,  History  of  the  Union  Pacific  Railway,  pp.  58,  59. 
Pacific  Railway  Commission;  testimony  of  Gould,  Vol.  I,  p.  509. 


JAY   GOULD.  88 

tained  7,616  shares  of  stock  of  the  Central  Branch 
of  the  Union  Pacific,  paying  the  extraordinary 
price  of  $238  per  share  for  securities  which  had 
sold  at  $10  within  the  year/^  However,  control 
of  this  road  was  for  the  moment  essential  to 
Gould's  plans;  when  he  no  longer  needed  it,  he 
graciously  disposed  of  it  to  the  Union  Pacific  for 
exactly  the  sum  that  it  cost  him. 

Thereafter  Gould  let  it  be  known  that  his 
views  were  altered.  He  would  construct  a  Pa- 
cific road  of  his  own  by  extending  the  Kansas 
Pacific  through  Loveland  Pass  to  Salt  Lake  City 
and  then  to  San  Francisco,  by  means  of  the  Cen- 
tral Pacific.  This  announcement  frightened  the 
unhappy  directors  of  the  Union  Pacific  into  com- 
pliance with  his  original  proposal,  Gould  all  the 
while  protesting  that  the  consolidation  was  not 
so  greatly  to  his  advantage  as  his  new  scheme. 
The  three  roads,  that  is,  the  Union  Pacific,  Den- 
ver Pacific,  and  Kansas  Pacific,  were  merged 
(January,  1880),  the  shares  being  exchanged  for 
new  stock,  dollar  for  dollar,  the  bonded  indebted- 
ness being  left  undisturbed.  Of  this  new  stock, 
Gould  received  approximately  99,000  shares, 
much  of  which  was  speedily  disposed  of,  Gould 
admitting  that  his  desire  to  sell  had  been  stimu- 

47Report  of  the  Pacific  Railway  Commission,  p.  60. 


'    ^'^     OF  THE 

UNIVERSITY 

OF 


84  GREAT    FORTUNES. 

lated  by  the  fact  that  the  consolidation  had  caused 
an  advance  of  30  points  in  stock  quotations/^ 

It  was  generally  conceded  that  the  union  of  the 
three  roads  was  advantageous,  however  hard  the 
terms ;  and  testimony  was  unanimous  in  favor  of 
the  branch  hne  system  advocated  by  Gould,  who 
profited  by  buying  up  numerous  little  roads,  and 
selling  them  to  the  Union  Pacific  at  enhanced 
prices.  No  doubt,  these  acquisitions  sometimes 
benefited  the  main  line,^^  but  it  would  seem  that 
Gould  in  his  fiduciary  position  should  have  con- 
fined his  activity  to  suggesting  such  purchases  to 
the  management. 

By  1883,  Gould  had  entirely  disposed  of  his  in- 
terests in  the  Union  Pacific,  and  that  most  oppor- 
tunely. The  past  four  years  had  been  prosper- 
ous, but  he  was  too  shrewd  a  man  not  to  take  heed 
when  disaster  was  approaching.  Perhaps  he  saw 
it  the  more  clearly,  because  he  usually  helped  to 
precipitate  it.  At  any  rate,  the  competition  of 
new  lines  that  were  building,  as  well  as  the  heed- 
less squandering  of  substance  on  branch  roads 

*8 Pacific  Railway  Commission;  testimony  of  Jay  Gould,  Vol. 
I,  p.  569.  It  is  stated  that  Gould  obtained  his  Kansas  Pacific 
stock  at  12%. 

*»However,  the  statement  is  made  in  the  Report  of  the  Pacilic 
Railway  Commission,  Vol.  I,  p.  66,  that  the  three  branches  (the 
Denver,  South  Park  and  Pacific  Railway  Company,  the  Central 
Branch  Union  Pacific,  and  the  Kansas  Central)  "were  all  bought 
from  Mr.  Gould,  and  the  terms  at  which  they  were  acquired  were 
such  M  to  make  it  impossible  to  avoid  a  disastrous  result." 


JAY   GOULD.  85 

and  on  dividend  payments  had  reduced  the  Union 
Pacific  to  the  verge  of  bankruptcy.  When  the 
deluded  Charles  Francis  Adams  became  Presi- 
dent in  1884,  he  found  a  floating  debt  of  $10,- 
000,000  which  had  been  allowed  to  accumulate, 
while  Gould,  under  cover  of  dividend  payments, 
unostentatiously  disposed  of  his  stock.  But  that 
was  not  all.  As  Adams  plaintively  remarked  to 
the  investigating  committee  of  1887,  *'In  1883 
everything  came  on  the  Union  Pacific  at  once. 
Before  that  time  it  was  earning  enormously" 
(Gould  evidently  induced  him  to  beheve  that  it 
was) ,  "but  at  that  time  the  Northern  Pacific  was 
completed  through,  which  affected  us  very  se- 
verely on  Pacific  Coast  business,  and  on  Mon- 
tana business  very  severely  indeed.  The  Den- 
ver and  Rio  Grande  was  completed  through  to 
Ogden,  which  affected  us  on  business  to  Salt 
Lake.  At  the  same  time  the  Southern  Pacific 
was  completed  through,  which  affected  us  on 
business  to  San  Francisco  and  the  Pacific.  And 
almost  at  the  same  time  the  Horn  Silver  Mines 
ceased  to  be  productive.  The  result  was  that  our 
business  fell  off,  if  I  recollect  right,  $4,000,000 
in  one  year.  At  the  same  time  our  rates  were  re- 
duced, and  our  expenses  were  necessarily  in- 
creased."^^ 


sopacific  Railway  Commission;  testimony  of  Charles   Francis 
Adams,  Vol.  I,  p.  86. 


86  GREAT    FORTUNES. 

Adams  at  once  introduced  a  policy  of  retrench- 
ment— $16,000,000  was  put  into  the  property, 
one-half  raised  from  the  net  revenues,  while  the 
stockholders  went  without  dividends,  the  other 
half,  from  the  sales  of  securities  in  the  treasury. 
But  the  debt  of  the  road  continued  to  increase, 
and  Gould,  who  had  found  it  financially  embar- 
rassed, now  left  it  in  straits.  His  experience  with 
the  Erie  had  been  repeated  in  certain  respects,  al- 
though his  career  had  not  been  so  spectacular.  In 
both  cases,  he  had  profited  as  an  individual;  as 
for  the  roads,  that  is  another  story.  Later  he 
was  to  return  and  tender  an  unavailing  succor  to 
the  Union  Pacific,^ ^  but  meantime  his  interests 
had  veered  in  another  direction,  and  he  was  bus- 
ied in  organizing  an  elaborate  system  of  railroads 
in  the  southwest. 

Gould  secured  an  interest  in  the  Wabash,  St. 
Louis,  and  Pacific  in  1879,^^  about  the  time  that 


51  When  the  Adams  management  became  hopelessly  involved, 
Gould  and  Sage  came  to  its  assistance  with  loans.  A  large  part 
of  the  floating  debt  was  controlled  by  them,  and,  at  the  end  of 
1890,  they  took  charge  of  the  property,  retired  Adams  and  in- 
stalled Sidney  Dillon  in  the  Presidency.  In  August,  1891,  Gould 
contributed  $5,000,000  to  a  syndicate  formed  to  guarantee  the 
floating  debt,  which,  by  that  time,  had  attained  enormous  propor- 
tions. However,  there  was  little  to  be  got  out  of  a  continued 
active  connection  with  the  road.  Its  fate  was  clear  to  the  most 
optimistic,  and  it  was  known  several  months  before  Gould's  death 
that  he  was  to  withdraw  from  all  participation  in  its  concerns. 

Cf.  Bradstreet's,  Vol.  XVIII,  p.  760;  Vol.  XIX,  pp.  66,  516; 
Vol.  XX,  p.  261. 

52For  the  details  which  follow  cf.  Poor's  Marmals  for  the 
period  and  the  Commercial  and  Financial  Chronicle. 


JAY   GOULD.  87 

he  bought  control  of  the  Missouri  Pacific.  In  the 
same  year,  he  became  a  director  of  the  Denver 
and  Rio  Grande,  then  in  process  of  building. 
Early  in  1880,  he,  together  with  certain  other  di- 
rectors of  the  Union  Pacific,  appeared  on  the 
board  of  the  Texas  and  Pacific.^^  After  a  strug- 
gle for  control,  he  also  forced  his  way  into  the 
Missouri,  Kansas  and  Texas,  whither  he  was 
again  followed  by  the  ubiquitous  Union  Pacific 
directors.^^  But  his  purchases  did  not  stop 
there.  In  December,  1880,  he  secured  a  majority 
interest  in  the  International  and  Great  Northern, 
and,  about  the  same  time,  he  bought  70,000  shares 
of  the  stock  of  the  St.  Louis,  Iron  Mountain  and 
Southern.  It  was  conjectured  that  40,000  shares 
of  the  stock  of  this  latter  road  were  obtained  for 
somewhat  less  than  $2,000,000^^ — a  sum  by  no 
means  small,  however,  in  view  of  the  fact  that 
the  road  showed  a  deficit  of  more  than  $180,000 
for  the  preceding  year.  During  this  period, 
Gould  also  undertook  to  build  a  new  road,  the 
New  York,  Lackawanna  and  Western,  having 


53The  Texas  and  Pacific  went  into  the  hands  of  receivers  in 
1885.  After  being  sold  under  foreclosure  proceedings  in  1887, 
Gould  still  remained  in  possession,  and  held  the  Presidency  at  the 
time  of  his  death. 

5  4This  company  was  bankrupt  at  the  time  when  Gould  acquired 
control. 

^^Commercial  and  Financial  Chronicle,  December  18,  1880,  Vol, 
XXXI,  p.  653, 


88  GREAT    FORTUNES. 

previously  secured  the  co-operation  of  capital- 
ists interested  in  the  Delaware,  Lackawanna  and 
Western.  This  last-named  project  was  part  of 
an  elaborate  scheme  to  provide  an  eastern  outlet 
for  the  Wabash  by  means  of  the  Great  Western 
of  Canada  and  the  Delaware,  Lackawanna  and 
Western. 

Having  thus  provided  for  his  eastern  connec- 
tions, and  having  secured  a  firm  hold  on  the 
southwestern  traffic  situation,  Gould  proceeded 
to  carry  out  his  plans  of  organization.  The 
Missouri  Pacific  was  consolidated  with  the  St. 
Louis  and  Lexington,  the  Kansas  City  and 
Eastern,  the  Lexington  and  Southern,  the  St. 
Louis,  Kansas,  and  Arizona,  the  Missouri  River, 
and  the  Leavenworth,  Atchison,  and  Northwest- 
ern railroads.^®  In  accordance  with  his  customary 
methods,  Gould  made  this  consolidation  the  occa- 
sion for  an  increased  stock  issue  of  $12,419,- 
800.  In  December,  1880,  the  Missouri, 
Kansas,  and  Texas  was  leased  to  the  Mis- 
souri Pacific,  the  rental  to  be  the  net  earnings  of 
the  leased  line.^^    In  1881,  the  Missouri  Pacific 

li^Ibid.,  August  21,  1880,  Vol.  XXXI,  p.  205. 

s^The  lease  was  abrogated  in  1S88,  the  accrued  interest  in  ex- 
cess of  the  surplus  earnings  being  larger  than  the  amount  that 
could  be  advanced  by  the  Missouri  Pacific  under  the  terms  of 
the  lease.  From  January  1st  to  June  30th,  1891,  the  road  was  in 
the  hands  of  a  receiver,  and  the  net  earnings  had  to  be  applied 
to  repairs  of  the  property. 


JAY   GOULD.  89 

acquired  the  ownership  of  the  St.  Louis,  Iron 
Mountain,  and  Southern  by  giving  three  shares 
of  its  stock  for  four  of  the  latter  road.  In  March, 
the  stockholders  of  this  road  had  voted  a  $2,000,- 
000  bond  increase,  and  had  authorized  an  addi- 
tion to  its  capital  stock  of  $12,000,000,  all  this 
being  done  in  view  of  the  fact  that  the  company 
had  been  unable  the  preceding  year  to  meet  the 
interest  on  its  first  and  second  income  bonds.  In 
accordance  with  the  plan  for  a  general  union,  the 
International  and  Great  Northern  was  taken 
over  by  the  Missouri,  Kansas,  and  Texas,  the 
exchange  of  stock  being  at  the  rate  of  two  to 
one  in  favor  of  the  latter  road.  The  Internation- 
al and  Great  Northern  ran  through  Central 
Texas,  and  was  a  very  important  adjunct  of  the 
Missouri  Pacific,  which  thereby  secured  an  outlet 
to  the  Gulf.  However,  in  the  usual  fashion  of 
the  mismanaged,  debt-burdened  Gould  proper- 
ties, it  defaulted  in  its  interest  payments  several 
years  later,  and  the  lease  was  abrogated. 

While  all  this  was  in  progress,  the  Wabash  had 
entered  upon  a  career  of  positively  voracious  ex- 
pansion. In  1880,  a  new  $50,000,000  mortgage 
had  been  authorized^^  to  furnish  the  wherewithal 
for  retiring  certain  bonds,  for  building  new  lines, 

6«0nly  $17,000,000  of  this  new  mortgage  was  issued. 


90  GREAT    FORTUNES. 

for  buying  bridges  and  barges.  The  next  year, 
the  Wabash  entered  into  an  agreement  with  the 
Central  of  New  Jersey^®  and  with  the  Pennsyl- 
vania, whereby  the  latter  agreed  to  transmit 
freight,  delivered  to  it  by  the  Central,  over  its 
own  lines,  to  the  Wabash  at  Red  Bank.^^  Not- 
withstanding all  these  elaborate  schemes  for  an 


B»The  history  of  Gould's  later  connection  with  the  Central  ot 
New  Jersey  is*  typically  interesting.  President  Gowen  of  the 
Baltimore  and  Ohio  thought  the  Central  would  give  his  road  an 
excellent  outlet  to  New  York,  and  as  Gould  manifested  no  con- 
cern whatever,  he  proceeded,  with  the  aid  of  the  Vanderbilts,  to 
purchase  control.  The  Reading  and  the  Baltimore  and  Ohio  in 
concert  secured  92,000  shares  of  stock,  and  the  directors  in  power 
in  the  Central  were  thereupon  confidently  requested  to  resign. 
The  sole  reply  to  this  demand  came  in  the  form  of  a  bill,  which 
Gould  with  the  assistance  of  the  Pennsylvania  Railroad  lobby 
succeeded  in  rushing  through  the  New  Jersey  legislature.  This 
bill  authorized  the  Central  to  increase  its  capital  stock  to  an 
amount  necessary  to  pay  off  a  bonded  indebtedness  of  $8,000,000, 
which  was  payable  on  demand.  This  meant  a  possible  stock  issue 
of  80,000  shares,  of  which  the  Baltimore  and  Ohio-Reading  crowd 
would  be  forced  to  purchase  over  40,000  in  order  to  retain  control. 
Truly,  the  days  of  the  Erie  had  not  been  forgotten !  A  suit  was 
promptly  begun  to  estop  the  new  issue,  on  the  ground  that  the 
charter  provisions  of  the  road  forbade  such  an  increase  in  its 
capital  stock  without  the  consent  of  two-thirds  of  the  stockhold- 
ers. A  temporary  injunction  was  granted,  and  was  still  in  force, 
when  the  time  for  a  new  election  arrived.  The  board  decided  not 
to  call  a  meeting.  Their  opponents,  relying  upon  an  old  New 
Jersey  statute,  which  provided  that,  where  the  directors  failed  to 
call  an  annual  meeting,  it  could  be  called  by  any  five  stockholders 
by  giving  ten  days'  public  advertisement,  proceeded  to  call  a 
meeting  for  May  5th,  1882.  The  Chancellor  granted  an  order 
forbidding  an  election  at  the  time  set,  but  finally  fixed  a  day  in 
June  for  a  new  election — the  first  one  held  in  eight  years!  Thus 
Gowen  finally  succeeded  in  securing  a  victory  over  Gould. 

Cf.  Commercial  and  Financial  Chronicle,  Vol.  XXXI V. 

«oThe  Wabash  was  preparing  to  extend  its  line  to  this  point. 
In  1882,  the  New  York,  Lackawanna  and  Western  was  leased  in 
perpetuity  to  the  Delaware,  Lackawanna  and  Western.    The  ques- 


JAY   GOULD.  91 

extension  of  its  operations,  the  Wabash  passed 
the  dividend  on  its  preferred  stock  the  very  next 
year.  Small  wonder,  when  the  company  had  as- 
sumed the  obligations  of  all  the  miserably 
equipped  httle  roads  in  its  vicinity!  A  part  of 
the  January  interest,  moreover,  was  only  met  by 
taking  up  and  selling  some  bonds  on  which  a 
loan  had  previously  been  negotiated.  In  April, 
1883,  the  Wabash  was  leased  to  another  Gould 
property,  the  St.  Louis,  Iron  Mountain,  and 
Southern,  the  rental  to  be  its  net  earnings.  The 
reason  for  such  an  apparently  perfunctory  trans- 
action is  probably  explained  by  a  statement  which 
appeared  in  the  Commercial  and  Financial 
Chronicle  at  the  time.''^  A  guess  was  hazarded 
that  Gould  found  it  necessary  to  retain  the  Wa- 
bash in  order  to  prevent  the  injury  to  the  Mis- 
souri Pacific  which  would  result  from  its  going 
into  the  hands  of  a  receiver.  By  leasing  the  road 
to  one  of  his  own  lines  for  its  net  earnings  sim- 
ply, he  ran  no  risks,  and  he  was  relieved  of  the 
necessity  of  carrying  the  stock  to  keep  control, 
and  of  making  continual  advances  to  the  com- 
pany. 

tion  of  an  eastern  outlet  for  the  Wabash  became  once  more  a 
problem — one  which  George  Gould  has  been  attempting  to  solve 
at  the  present  day  by  purchases  of  certain  small  eastern  lines. 

'^Wommercial   and  Financial   Chronicle,   April   21,    1883,   Vol- 
XXXVI,  p.  439. 

7 


92  GREAT    FORTUNES. 

However,  it  cannot  be  said  that  Gould  as- 
sumed any  chances  of  loss  in  making  loans  to 
bankrupt  corporations.  He  had  means  of  pro- 
tecting himself,  not  vouchsafed  to  the  ordinary 
bondholder  or  stockholder.  For  instance,  when 
the  Wabash  finally  defaulted  in  the  interest  on  its 
general  mortgage  bonds,  in  1884,  the  notes  given 
by  Gould,  Sage  and  Humphreys  to  take  up  its 
floating  debt  were  speedily  protected  by  the  issu- 
ance of  receivers'  certificates  in  exchange  for 
them.  A  rather  acrid,  but,  no  doubt,  approxi- 
mately correct  review  of  Gould's  conduct  of  this 
unwieldy  company  appeared  in  the  Commercial 
and  Fmancial  Chronicle  shortly  after  the  road 
had  been  precipitated  into  bankruptcy.  "Among 
all  Mr.  Gould's  railroad  operations,  none  has 
been  more  striking  than  that  in  connection  with 
Wabash.  How  the  company  was  raised  from 
deep  insolvency;  how  Cyrus  W.  Field  allowed 
himself  to  be  made  President  for  a  time;  how 
stock  was  bought  up  at  almost  nothing  and  sold 
out  at  fabulous  prices;  how  the  leases  of  innum- 
erable lateral  roads  were  made  at  immense  rent- 
als; how  stock  was  listed  in  London;  how  the 
general  or  blanket  mortgage  bonds  were  created 
and  widely  distributed  to  the  amount  of  $17,- 
000,000,  furnishing  the  required  cash  for  a  sea- 
son;    how  the  famous  dividend  of  November, 


JAY   GOULD.  98 

1881,  was  declared  on  the  preferred  stock,  when 
the  company  was  already  known  to  have  a  large 
deficit;  the  unloading  of  insiders  on  the  strength 
of  that  dividend;  the  leasing  of  the  Wabash  to 
the  St.  Louis  and  Iron  Mountain  Railroad,  giv- 
ing control  of  the  road  without  the  ownership  of 
a  share  of  stock;  the  advance  of  money  by  direc- 
tors ;  the  collateral  trust  loan — the  dernier  ressort 
of  modern  railroad  financiers;  the  final  insol- 
vency in  June,  1884,  and  the  appointment  of  one 
of  the  most  prominent  directors,  a  receiver;  the 
issue  of  receivers'  certificates  to  pay  off  notes  en- 
dorsed by  directors;  the  recent  meeting  in  the 
nature  of  a  funeral,  at  which  Mr.  Gould  as  Presi- 
dent showed  his  resignation  (controlling,  with 
the  Iron  Mountain,  the  chief  assets  of  the  de- 
ceased), and  the  managers'  committee  submitted 
their  plan  for  the  future  resurrection,  in  which 
the  unprofitable  leases  made  by  them  are  to  be 
shaken  off,  the  lien  of  the  general  mortgage  ex- 
tinguished, the  stockholders  heavily  assessed,  and 
the  directors  are  to  be  paid  in  cash — all  the  above 
circumstances  contribute  to  make  the  history  of 
Wabash,  since  Mr.  Gould  took  it,  one  of  the 
most  remarkable  and  interesting  that  has  ever 
occurred  in  American  railroading.  It  is  even 
phenomenal,  embracing  in  a  comparatively  short 
period  every  phase  of  kite-flying,  watering,  stock- 


94  GREAT    FORTUNES. 

jobbing,  bankruptcy  of  the  company  and  assess- 
ment of  its  stockholders,  which  are  so  frequently 
commented  on  in  London  and  Amsterdam,  as 
being  the  common  characteristics  of  American 
railroad  management."  ^^ 

With  the  purchase  of  a  large  interest  in  the  St. 
Louis  and  San  Francisco,  in  January,  1882, 
Gould  secured  control  of  all  the  roads  leading 
into  the  southwest,  save  the  Atchison,  Topeka 
and  Santa  Fe.  South  of  Kansas  City  and  the 
Missouri  River  and  east  and  south  of  Kansas, 
he  had  no  competitors.  The  potential  prosperity 
of  an  immense  area  was  in  great  part  at  his  dis- 
posal. The  history  of  railroad  management  in 
the  southwest  became  henceforth  a  history  of  his 
activities,  and  it  does  not  speak  well  for  him  that 
that  history  should  have  been  a  dreary  recital  of 
bankruptcies,  receiverships,  and  foreclosures. 

III. 

Apart  from  his  railway  holdings,  Gould  had 
but  two  large  interests,  and  those  were  both  in 
great  public  service  corporations,  connected  with 
transportation — the  Western  Union  Telegraph 
Company,  and  the  Manhattan  Elevated  Railway 
Company.     Gould  early  attempted    to    "break 

<i2Commercial  and  Financial  Chronicle,  August  16,  1884,  Vol. 

XXXIX,  p,  m, 


JAY   GOULD.  95 

into"  the  former,  nor  was  he  at  all  discouraged  by 
the  fact  that  the  Vanderbilts  were  apparently  in 
full  control.  There  were  other  ways  of  securing 
an  interest  besides  making  direct  stock  purchases, 
and  he  was  prepared  to  use  those  means  without 
delay.  As  a  first  step  toward  the  realization  of 
his  plans,  he  arranged  to  have  himself  and  certain 
other  directors  of  the  Union  Pacific  declared  trus- 
tees of  the  Atlantic  and  Pacific  Telegraph  Com- 
pany— an  unpromising  concern,  indeed,  but  one 
well  adapted  to  annoy  the  Western  Union.  It 
was  announced,  in  June,  1874,  that  the  contract 
of  the  Union  Pacific  with  the  latter  company  had 
been  abrogated,  and  it  was  stated,  furthermore, 
that  the  Atlantic  and  Pacific  would  thereafter 
compete  for  the  California  business.  Moreover, 
the  Atlantic  and  Pacific  was  about  to  construct 
an  independent  line  from  Omaha  to  Chicago, 
and  it  would  soon  have  a  system  stretching  from 
ocean  to  ocean.  Notwithstanding  these  ambi- 
tious schemes,  the  company  exhibited  a  deficit  of 
$9,572  for  the  next  year,  but  the  management, 
by  no  means  discouraged,  authorized  an  increase 
of  $5,000,000  in  its  capital  stock,  to  be  issued 
at  20. 

Meanwhile,  the  Atlantic  and  Pacific  steadily 
cut  rates,  and  speculation  was  rife,  as  to  what 
action  would  be  taken  by  the  Western  Union.  It 


96  GREAT    FORTUNES. 

was  soon  evident;  in  1887,  the  companies  agreed 
to  pool  their  gross  receipts,  upon  a  basis  of  di- 
vision highly  favorable  to  the  Atlantic  and  Pa- 
cific.^^  Subsequent  to  this  arrangement,  429  of- 
fices of  the  latter  corporation  were  closed,  and  its 
reduced  business  made  necessary  a  payment  of 
$40,000  by  the  Western  Union  to  make  up  its 
stipulated  percentage  quota  of  the  gross  receipts. 
Truly  the  bargain  was  not  a  bad  one  for  Gould ! 
But  he  was  not  satisfied,  and,  assuming  control 
of  a  new  concern,  the  American  Union  Telegraph 
Company,  he  harassed  the  Western  Union  more 
than  ever.  Coming  forward  once  again  in  the 
guise  of  a  public  benefactor,  he  let  it  be  known 
that  the  American  Union  was  designed  to  frus- 
trate the  unlawful  operations  of  such  a  powerful, 
grasping  corporation  as  the  Western  Union.  The 
public  was  invited  to  look  on  approvingly,  while 
the  American  Union  busily  extended  its  network 
of  wires.  By  January,  1880,  40,000  miles  of  line 
had  been  secured,  and  in  the  following  July,  an- 
other 12,000  miles  were  acquired,  through  the 
lease  of  the  Dominion  Telegraph  Company  of 
Canada.    Radical  rate  reductions,  varying  from 

«3Eighty-one  and  one-half  per  cent,  of  the  gross  earnings  were 
to  go  to  the  Western  Union;  1'2%  per  cent.,  to  the  Atlantic  and 
Pacific.  Moreover,  the  Western  Union  agreed  to  purchase  72,50£? 
shares  of  the  Atlantic  and  Pacific  (over  half  its  capital  stock)  at 
25,  giving  12,500  shares  of  the  Western  Union  and  $912,550  in 
cash,  in  return. 


JAY   GOULD.  97 

15  to  30  per  cent.,  were  instituted,  and  altogether, 
considering  the  patronage  which  Gould,  as  a 
great  railroad  magnate,  could  give  to  his  new 
creation,  the  outlook  seemed  decidedly  serious 
for  the  older  company.  The  inevitable  result  was 
a  consolidation,  which  was  brought  about  in 
1881.*^*  Gould  and  his  allies  thereupon  assumed 
a  position  of  dominance  in  the  new  Western 
Union,  and  at  the  time  of  Gould's  death  in  1892, 
the  President  of  the  company  estimated  his  stock- 
holdings at  $20,000,000. 

Gould  believed  in  the  earning  powers  of  the 
Manhattan  Elevated  just  as  he  believed  in  those 
of  the  Western  Union,  and,  once  in  control,  he 
did  not  display  his  usual  readiness  to  dispose  of 
its  stock.  However,  the  way  to  power  was,  in 
the  first  place,  devious,  though  profitable.  The 
Manhattan  Company  had  been  organized  solely 
for  the  purpose  of  leasing  the  New  York  and  the 
Metropolitan  Elevated  railroads.  It  had  guar- 
anteed a  ten  per  cent,  dividend  on  the  stock  of 
both  these  roads,  as  a  condition  of  the  lease,  and 


e^The  American  Union  received  150,000  shares  of  the  Western 
Union  for  100,000  shares  of  stock  and  $5,000,000  of  bonds  of  the 
new  company.  The  Atlantic  and  Pacific,  which  also  entered  the 
consolidation,  obtained  84,000  shares  in  exchange  for  140,000  of  its 
own  shares.  The  Western  Union,  at  the  same  time,  increased  its 
capital  stock  $38,926,590,  of  which  $15,536,590  went  to  the  stock- 
holders of  the  original  company,  representing  additions  to  con- 
struction, made  since  1866. 


98  GREAT    FORTUNES. 

it  had  at  the  same  time  issued  $13,000,000  of  its 
own  stock,  which  represented  nothing  so  far  as 
could  be  seen  but  its  capitalized  expectations  of 
profit.  Suits  were  at  once  begun  by  dissatisfied 
stockholders  of  the  underlying  properties,  ask- 
ing a  dissolution  of  the  new  holding  company. 
It  became  involved  in  all  sorts  of  financial  diffi- 
culties, and  annoying  litigation,  which  caused  its 
stock  to  decline  rapidly  in  value.  The  New  York 
World  (Gould's  newspaper)  published  the 
gloomiest  accounts  concerning  the  Manhattan's 
probable  future.^^  Its  stock  finally  descended 
to  26  1-2 ;  and  the  men  in  control  began  to  sell 
heavily.  About  this  time,  it  first  began  to  be  ru- 
mored that  Gould  was  taking  all  the  securities 
offered  at  these  low  prices,^^  the  stories  published 
in  his  newspaper  having,  strangely  enough,  no 
power  to  terrify  him. 

Meanwhile,  as  a  result  of  the  various  suits 
which  had  been  instituted  against  the  company, 
receivers  were  finally  appointed — Judge  John  F. 
Dillon  and  Albert  C.  Hopkins,  both  trusted  lieu- 
tenants of  Jay  Gould.^^  The  latter  had  been 
busily  engaged  in  buying  Manhattan  stock  for 
some  time  past,  and  he  is  said  to  have  purchased 

65 New  York  Ti7nes,  December  3,  1892. 
e^Bailroad  Gazette,  June  17,  1881. 
Qilbid.,  July  15,  1881. 


JAY    GOULD.  99 

70,000  shares  at  prices  ranging  from  16  to  20.^^ 
Eventually,  all  the  pending  suits  were  called  off, 
and  a  settlement  was  effected  between  the  Man- 
hattan and  the  two  other  companies.  When 
Gould  became  President  of  the  reorganized  com- 
bination in  November,  1881,  the  stock,  which  had 
sold  down  to  16,  was  being  quoted  at  55.  There 
was  much  grumbling  about  the  mysterious  fash- 
ion in  which  many  troublesome  suits  had  been 
quietly  set  aside,  but  there  was  nothing  to  be 
done.  Gould,  securely  installed,  was  not  to  be 
lightly  displaced,  once  he  had  made  up  his  mind 
to  stay. 

With  the  account  just  given,  the  tale  of 
Gould's  numerous  activities  has  by  no  means 
been  told,  but  the  most  important  phases  of  his 
business  career  have  been  briefly  recounted.  In 
view  of  the  number  and  variety  of  his  interests, 
the  diversity  of  the  sources  from  which  he  drew 
his  profits,  it  is  significant,  above  all,  to  know  that 
he  had  faith  in  but  three  of  the  corporations  with 
which  he  was  connected,  as  long-time  paying  in- 
vestments— the  Missouri  Pacific,  the  Western 
Union,  and  the  Manhattan  Elevated.  There  is 
need,  perhaps,  of  no  other  commentary  than  this, 
to  show  the  highly  speculative  character  of  the 
greater  part  of  the  gains  amassed  by  him  during 
the  course  of  his  lifetime. 

68  New  York  TimeSy  Dec.  3,  1892. 


CHAPTER  IV. 

GROUP    FORTUNES: 

THE   "STANDARD  OIL"  AND  THE 
"MORGAN"   MEN. 

AT  the  beginning  of  the  seventies,  a  condition  of 
"^  ^  indiscriminate  competition  prevailed  within 
the  petroleum  refining  industry,  and  gave  im- 
petus to  the  movement,  initiated  by  John  D. 
Rockefeller,  which  early  made  for  the  union  of 
the  large  interests  composing  what  came  to  be 
known  as  the  Standard  Oil  Alliance.^  By  the 
close  of  the  decade  this  Alliance  was  the  most 
effective  and  powerful  of  all  the  industrial  or- 
ganizations that  had  come  into  being,  and  when 
the  trust  succeeded  the  looser,  extra-legal  com- 
bination in  1882,  it  had  an  estimated  capital  of 
$70,000,000,  of  which  the  pipe-line  interests  were 
said  to  have  constituted  about  one-third. 


iThe  working  arrangements  of  the  "alliance"  were  close  and 
eflfective  because  of  the  fact  that  the  stock  ownership  of  the 
various  companies  composing  it  was  distributed  in  such  a  way 
as  to  make  the  advantage  of  one  member  of  the  organization 
more  or  less  the  advantage  of  all.  In  other  words,  the  device 
of  a  "community  of  interests"  was  employed,  with  such  good 
results,  moreover,  that  by  1879  the  association  included  from  90 
to  95  per  cent,  of  the  refining  interests  of  the  country,  besides 
having  control  of  all  the  principal  pipe  lines  for  the  transporta- 
tion of  oil. 

Cf.  Ida  M.  Tarbell,  The  HUtory  of  the  Stcmdard  Oil  Company. 


GROUP   FORTUNES.  101 

The  early  history  of  the  methods  whereby  the 
Oil  Trust,  under  the  leadership  of  John  D. 
Rockefeller,  grew  and  prospered,  is  sufficiently 
familiar  to  need  no  elaboration.  Having  success- 
fully applied  his  energy  and  organizing  abihty 
to  the  establishment  of  his  private  business,  Mr. 
Rockefeller  then  turned  his  attention  to  the  de- 
velopment of  the  trust.  The  conditions  of  the 
time,  the  policy  of  the  railroads,  immensely  aided 
the  task  of  amalgamation.  As  always,  the  alli- 
ance of  transportation  with  trading  and  indus- 
trial interests  gave  a  superiority  within  the  com- 
petitive field  out  of  all  proportion  to  technical  or 
personal  advantages,  although  those  were  un- 
doubtedly great.  Indeed,  it  is  not  always  easy 
to  see  to  what  extent  the  immense  gains  of  the 
"trust"  were  the  result  of  more  economical  and 
better  methods  of  production — to  what  extent 
they  were  due  to  competitively  cheaper  methods 
of  marketing,  an  outgrowth  of  the  peculiarly 
intimate  relations  maintained  with  the  railroads, 
and,  later,  of  the  advantages  due  to  the  owner- 
ship of  an  elaborate  pipe-Hne  system.  But  this 
much  may  be  conceded:  however  persuasive  Mr. 
Rockefeller  may  have  been,  he  must  needs  have 
acquired  control  of  a  concern  boasting  some  de- 
gree of  effectiveness  before  he  could  demand  spe- 
cial consideration  from  the  railroads,  even  in 


102  GREAT    FORTUNES. 

those  days  of  unlicensed  competition.  Neverthe- 
less, such  favors  once  obtained,  the  process  of 
growth  was  enormously  facilitated,  quite  apart 
from  differences  in  personal  shrewdness  or  im- 
provements in  technical  processes.  When,  as  in 
this  case  of  the  Standard  Oil  Trust,  extra-indus- 
trial competitive  advantages  were  combined  with 
technical  superiority,  immense  gains  were  sure  to 
result  and  the  process  of  monopolization  was  cer- 
tain to  continue. 

By  1888,  the  trust  was  earning  dividends  of 
V  from  $16,000,000  to  $20,000,000  on  a  capitaliza- 
tion of  $90,000,000;  and,  in  view  of  these  large 
returns,  it  might  have  been  expected  that  the  in- 
vestments of  the  men  in  control  of  the  Standard 
Oil  properties  would  be  found  to  be  of  consider- 
able extent.  But  in  point  of  fact,  their  outside 
interests  do  not  seem  to  have  been  of  any  great 
importance  prior  to  1887  or  1888.  Clearly,  there 
were  no  evidences  of  that  unanimity  of  action  in 
the  placing  of  investments  which  has  later  op- 
erated to  make  the  so-called  Standard  Oil  group 
a  power  in  the  industrial  and  financial  world  at 
large.  Then  they  were  pre-eminent  in  only  one 
field  of  activity — that  of  petroleum  refining.  The 
explanation  of  this  fact  is  not  far  to  seek.  In  the 
earher  days  large  dividend  payments  could  be 


GROUP    FORTUNES.  103 

very  profitably  reinvested  in  the  business  from 
which  they  were  derived — in  improvements  in 
processes,  in  additions  to  holdings,  and  in  the  de- 
velopment of  allied  and  subsidiary  industries. 
The  pipe-line  system,  for  example,  which  had 
been  so  effectively  extended,  had  required  large 
expenditures  for  the  purchase  of  competing  lines 
and  the  building  of  new  ones.  The  utilization  of 
by-products,  too,  had  been  largely  undertaken 
since  1875,  while  natural  gas,  being  found  in  the 
neighborhood  of  the  oil  fields  and  requiring  sim- 
ilar methods  of  piping  and  drilling,  offered  an- 
other obvious  avenue  of  investment.  But,  al- 
though with  tliis  growth  in  size  and  comprehen- 
siveness, and  with  increased  economies  of  produc- 
tion, dividends  were  becoming  progressively 
larger,  the  opportunities  for  their  reinvestment 
were  none  the  less  rapidly  diminishing.  A  time 
must  come  when  profits-:^uld  grow  to  be  suffi-  ^"^ 
ciently  unwieldy  to  present  a  serious  problem  in 
investment,  and  that  time  seems  to  have  been 
reached  toward  the  close  of  the  eighties. 

All  this  does  not  mean  that  there  had  been  no 
outside  investments  whatever  prior  to  the  period 
in  question.     Individual  members  of  the  Stand- 
ard Oil  Trust  had  without  doubt  been  connected       , 
with  other  Knes  of  activity,  notably  with  the  rail-    V 


104  GREAT    FORTUNES. 

roads  of  the  country.^  But  none  of  these  early  in- 
vestments are  of  particular  importance  as  evi- 
dencing an  extension  of  the  group  interests. 
They  seem  to  have  been  purely  personal  matters, 
and  as  such  they  are  significant  only  as  indica- 
tions of  the  probable  direction  to  be  taken  by 
later  and  more  important  investments.  As  has 
been  said,  the  period  of  general  group  expan- 
sion does  not  begin  until  1887  or  1888.  In  the 
former  year  John  D.  Rockefeller  became  a  mem- 
ber of  the  syndicate  that  bought  out  the  Minne- 
sota Iron  Company.^  Following  the  change  of 
management,  Benjamin  Brewster  and  Henry  M. 


2For  example,  Henry  M.  Flagler  appeared  on  the  directorate 
of  the  Valley  Railroad  Company  in  1879.  In  1882  William  Rocke- 
feller became  director  of  the  Chicago,  Milwaukee  and  St.  Paul. 
Benjamin  Brewster,  a  holder  of  Standard  Oil  certificates,  was 
perhaps  more  especially  a  railroad  man  prior  to  1881,  when  he 
became  vice-president  of  the  National  Transit  Company  (the 
Standard  Oil  pipe-line  organization).  He  had  been  interested  in 
the  construction  of  the  Chicago,  Rock  Island  and  Paciiic,  becom- 
ing a  director  of  the  company  in  1879  and  continuing  his  con- 
nection with  it  until  his  death  in  1897.  Jabez  A.  Bostwick  (one- 
time president  of  the  American  Transfer  Company,  and  later 
trustee  and  treasurer  of  the  Standard  Oil  Trust)  also  had  large 
individual  interests  in  railroads.  In  1886,  he  became  president  of 
the  New  York  and  New  England,  and  about  the  same  time 
acquired  stock  holdings  in  other  New  England  roads. 

Concerning  Brewster,  cf.  Railway  and  Engineering  Review, 
Sept.  11,  1897,  Vol.  XXXVII,  p.  530;  concerning  Bostwick,  cf. 
Railroad  Gazette,  December  17,  1886;  concerning  Flagler's  appear- 
ance on  the  directorate  of  the  Valley  Railroad,  cf.  Poor's  Manual, 
1879;  concerning  William  Rockefeller,  director  of  the  Chicago, 
Milwaukee  and  St.  Paul,  cf.  Poor's  Manual,  1882. 

^Commercial  and  Financial  Chronicle,  May  21,  1887,  Vol, 
XLIV,  p.  65S. 


GROUP    FORTUNES.  105 

Flagler  were  elected  directors  of  the  company  as 
well  as  of  its  railroad,  the  Duluth  and  Iron 
Range,  leaving  no  doubt  that  the  "Standard" 
(to  use  the  term  in  a  newer,  more  detached  sense) 
was  interested.^  About  1887,  or  somewhat  later, 
Rockefeller  interests  appeared  in  the  Northern 
PacilSc  and  in  the  Missouri,  Kansas  and  Texas,^ 
while  in  1888  WiUiam  P.  Thompson,  C.  W. 
Harkness,  Charles  Pratt,  and  Oliver  H.  Payne 
— all  Standard  Oil  men  in  high  standing — en- 
tered simultaneously  the  directorate  of  the  Ohio 
River  Railroad  Company.  Evidences  of  an  or- 
ganized expansion  of  investment  interests  are 
therefore  not  lacking  to  afford  justification  for 
dating  the  beginning  of  a  second  period  of  de- 
velopment from  this  time.  During  the  new  era 
Standard  Oil  holdings  ceased  to  be  regarded  as 
trust  stocks  simply;  they  also  included  the  out- 
side investment  interests  of  members  of  the 
group. 


^Poor's  Manual  of  Railroads,  1888. 

^Commercial  and  Financial  Chronicle,  June  7,  1890,  Vol.  L, 
p.  801,  says,  "Parties  familiar  with  the  affairs  of  the  company 
(L  e.,  the  M.  K.  &  T.)  remark  that  the  presence  on  the  board 
of  Mr.  Freeman,  Treasurer  of  the  Standard  Oil  Company,  and  Mr. 
Colgate  Hoyt,  the  Standard  Oil  representative  in  Northern  Pacific, 
is  a  feature  of  the  reorganization  as  accomplished.  It  emphasizes 
the  fact  that  the  Standard  Oil  people  whom  Mr.  Enos  has  repre- 
sented for  over  two  years  in  his  relations  with  the  property 
continue  to  have  a  large  and  active  interest  in  the  road." 


106  GREAT    FORTUNES. 

Notwithstanding  the  nature  of  the  expansion 
that  was  taking  place,  the  trust  was  nevertheless 
still  recognized  as  the  nucleus  from  which  the 
larger,  more  exclusively  financial  alliance  took  its 
growth.  Men  interested  directly  in  the  Stand- 
ard Oil  Trust  formed  the  Standard  Oil  group; 
and  it  was  not  until  some  years  later,  when  this 
connection  had  become  exceedingly  attenuated, 
that  the  trust  sank  into  a  position  of  relative  in- 
significance. Meanwhile  the  members  of  the 
group  continued  to  augment  their  wealth  and  to 
add  to  the  variety  of  their  investment  interests 
with  a  facility  deserving  of  comment.  It  is  true 
that  the  methods  whereby  large  industrial  con- 
cerns or  single  individuals  compel  or  otherwise 
induce  their  weaker  competitors  to  join  with 
them  or  else  be  forced  out  of  business  have  be- 
come fairly  familiar  from  constant  iteration.  But 
less  space  has  been  given  to  discussion  of  the 
means  by  which  a  group  of  investors  (dating 
their  union  from  some  enterprise  undertaken  in 
common)  may  further  extend  their  control  by 
proceeding  against  the  property  of  unorganized 
alien  interests.  The  more  powerful  the  group 
and  the  greater  its  resources,  the  more  numerous, 
of  course,  are  its  opportunities  to  gain  by  such 
operations.  It  may,  perhaps,  obtain  a  foothold 
in  legitimate  commercial  fashion,  by  extending 


GROUP    FORTUNES.  107 

aid  to  the  financially  embarassed  upon  terms  fav- 
orable to  itself.  Or  it  may  increase  its  holdings 
by  direct  purchase,  by  gradual  acquisition,  or  by 
other  means. 

A  narration  of  the  incidents  leading  up  to  the 
acquirement  of  control  of  certain  Minnesota  iron 
ore  properties  by  the  "Standard"  affords  an  ex- 
cellent illustration  of  the  methods  whereby  this 
earlier  extension  of  investment  interests  was  prof- 
itably and  easily  effected.  The  owners  of  the 
Mountain  Iron  and  Biwabik  mines — two  rich 
properties  of  the  Mesaba  range — had  been  en- 
gaged in  building  a  railroad,  the  Duluth,  Missabe, 
and  Northern,  from  the  mines  to  the  lake.^ 
Early  in  1892  they  became  involved  in  financial 
difficulties,  and  at  this  juncture  they  were  ap- 
proached by  an  agent  of  Mr.  Rockefeller,  who 
offered  them  a  loan  of  $1,600,000,  in  return  for 
which  the  Duluth,  Missabe,  and  Northern,  and 
the  mining  companies  owned  by  those  interested 
in  the  road,  were  to  contract  to  ship  ore  in  the 
vessels  of  the  American  Steel  Barge  Company^ 
for  a  number  of  years.  The  original  bond  issue 
of  the  road  was  also  to  be  retired  and  a  new  issue 


eiron  Age,  January  7,  1892,  Vol.  XLIX,  p.  16;  also  ibid.,  Feb- 
ruary 4,  1892,  p.  198!^ 

7The  Araerican  Steel  Barge  Company  was  a  Rockefeller  prop- 
erty; cf.  Iron  Age,  December  29,  1892,' Vol.  L,  p.  1281, 


108  GREAT    FORTUNES. 

of  $2,000,000  to  be  put  up  as  collateral  for  the 
loan.^  Having  quelled  opposition  to  this  plan 
by  purchasing  the  interests  of  certain  minority 
shareholders®,  the  newly-formed  syndicate  pro- 
ceeded to  buy  a  number  of  valuable  properties/^ 
Early  in  1893  rumors  of  a  pending  consolidation 
began  to  be  rife.  It  was  an  especially  propitious 
time  to  conduct  negotiations  aiming  at  the  con- 
trol or  acquisition  of  mines.  The  panic  of  1893 
was  on;  ore  producers  were  in  desperate  straits; 
mines  were  shutting  down;  loans  on  any  terms 
were  desired.  The  situation  emphasized  the  ad- 
vantage possessed  by  a  wealthy  group  of  invest- 
ors with  judiciously  distributed  holdings  and 
well  established  banking  connections.  The  men 
in  control  of  the  Duluth,  Missabe,  and  Northern 
needed  assistance,  as  did  the  rest  of  the  mine 
owners.  They  therefore  secured,  through  the 
vice-president  of  the  American  Steel  Barge  Com- 
pany a  loan  of  $432,575,  for  which  they  gave 
their  notes  secured  by  shares  of  stock  of  the 
Mountain  Iron  and  the  Missabe  Iron  companies. 


sjron  Age,  December  29,  1892,  Vol.  L,  p.  1281;  also  Iron  Trade 
Review,  June  6,  1895,  Vol.  XXVIII. 

9For  mention  of  the  controversy  preceding  a  sale  of  minority 
interests,  cf.  Iron  Age,  February  2,  1893,  Vol.  LI,  p.  249;  Rail- 
way Age,  February  10,  1893,  Vol.  XVIII,  p.  123. 

10 JroTO  Age,  March  16,  1893,  Vol.  LI,  p.  622;  ihid,,  April  13, 
1893,  p.  868, 


GROUP    FORTUNES.  109 

and  the  Duluth,  Missabe,  and  Northern  Rail- 
way. ^^  It  is  highly  probable,  too,  that  direct 
loans  were  made  them.^^  At  any  rate,  it  soon 
became  evident  that  the  transaction  was  but  an- 
other step  in  the  direction  of  an  ultimate  shifting 
of  control. 

In  September,  1893,  rimiOrs  of  a  pending  con- 
solidation became  justified  by  the  formation  of 
the  Lake  Superior  Consolidated  Iron  Mines 
Company,  which  took  over  the  majority  interests 
of  some  ten  or  eleven  Mesaba  mines,  the  Duluth, 
Missabe,  and  Northern  Railway  (with  its  ore 
docks),  and  the  Rockefeller  interests  on  the  Go- 
gebic range  and  in  the  Spanish- American  mines 
of  Cuba.^^.  The  consolidation  had  been  effected 
but  a  short  time  when  it  became  evident  that  the 
original  mine  owners  and  railway  projectors  had 
been  dispossessed  of  control.  A  series  of  dis- 
putes and  litigations  arose,  some  of  the  owners 
claiming  that  the  stock  offered  as  collateral  for 
loans  had  been  unlawfully  disposed  of  ;^*  others 


"Cf.  facts  disclosed  in  suit  of  Merritt  et  al.  vs.  American  Steel 
Barge  Company,  Federal  Reporter,  LXXIX,  p.  228. 

i2New  York  Tribune,  June  15,  1895. 

i37ro»  Age,  September  7,  1893,  Vol.  LII,  p.  444. 

i4The  Merritt  brothers  had  contributed  to  the  consolidation 
51  per  cent,  of  the  share  capital  of  the  Mountain  Iron,  the  Biwabik, 
and  the  Mesaba  Mountain  mines  in  addition  to  other  properties 
(cf.  Iron  Age,  July  21,  1893).  In  1894  they  brought  suit  against 
the  American  Steel  Barge  Company  to  recover  the  value  of  13^13 


110  GREAT    FORTUNES. 

asserting  that  their  property  had  been  taken  over 
at  unjustly  low  valuations,  as  the  result  of  mis- 
representation.^^ Matters  were  not  completely 
adjusted  until  sometime  in  1897.  Meanwhile 
the  company  once  within  the  control  of  wealthy 

shares  of  stock  in  the  recently  formed  Lake  Superior  Consolidated 
Iron  Mines  Company.  The  loan  of  $432,575  obtained  from 
Wetmore  (of  which  mention  has  been  made)  was  secured  by 
stocks  of  the  Mountain  Iron  and  Missabe  Iron  Companies,  and  the 
Duluth,  Missabe  and  Northern  Railway — which  stocks  were  not 
to  be  repledged  nor  disposed  of  in  any  way.  Wetmore,  however, 
transfen'ed  all  the  railway  stocks  to  Mr.  Rockefeller — as  a  pledge 
for  a  debt,  he  said.  The  Merritts  agreed  to  let  this  pass  as  a  sale 
of  stock  for  their  benefit,  although  a  short  time  before  the  same 
man  had  converted  $90,000  worth  of  their  bonds  to  his  own  use, 
upon  which  occasion  they  had  elected  to  "waive  the  tort  com- 
mitted." It  is  no  surprise,  thei-efore,  to  learn  that  Wetmore  later 
sold  the  promissory  notes  and  the  rest  of  the  pledged  stocks  in 
his  possession  to  the  American  Steel  Barge  Company,  of  which 
he  was  vice-president  and  managing  officer.  The  stocks  were  sub- 
sequently converted  into  shares  of  the  Lake  Superior  Consolidated 
Iron  Mines  Company.  L^pon  maturity  of  the  notes,  the  Barge 
Company  brought  suit  in  a  New  York  court  and  secured  a  decision 
authorizing  the  sale  of  the  notes  and  collateral,  the  latter  being 
bought  in  by  the  company  for  $25,000.  The  Merritts  had  pre- 
viously sued  the  Barge  Company  for  the  value  of  this  collateral, 
but,  the  suit  being  brought  in  a  Minnesota  court,  it  was  held  that 
the  decision  of  the  New  York  court  rendered  first  constituted  a 
bar  to  action.  Had  the  Merritts  sued  for  the  return  of  their 
stock,  the  Minnesota  court,  as  having  first  jurisdiction,  would 
have  been  entitled  to  retain  it,  since  it  would  have  been  com- 
pelled to  take  possession  of  personal  property.  The  decision  of 
the  United  States  Circuit  Court  was  reaffirmed  March  1,  1897,  by 
the  Circuit  Court  of  Appeals. 

Cf.  suit  Merritt  et  al.  vs.  American  Steel  Barge  Co.,  Federal 
Reporter,  Vol.  LXXV,  p.  813;  and  Vol.  LXXIX,  p.  228. 

i^Another  suit  afterward  compromised  was  brought  by  the 
Merritts  on  the  ground  that  the  Spanish-American  and  Gogebic 
properties  were  taken  into  the  consolidation  at  greatly  inflated 
values. 

Cf.  Federal  Reporter,  Vol.  LXXVI,  p.  909,  Rockefeller  vs. 
Merritt.  For  conjectures  as  to  the  terms  of  settlement,  cf.  Iron 
Trade  Review,  February  18,  1897;  Iron  Trade  Review,  March  4, 


GROUP    FORTUNES.  Ill 

financiers  rapidly  acquired  new  mines  both  by 
lease  and  by  purchase,  while  the  Duluth,  Missabe, 
and  Northern  soon  had  a  practical  monopoly 
of  the  ore  transportation  of  the  range. 

The   most   important   development,   however,\ 
of  the  period  under  discussion  lay  not  in  the  ac-        j 
quisition  by  the  Standard  Oil  Group  of  valuable 
mining  properties,  but  in  the  addition  to  its  re- 
sources of  substantial  banking  facilities.     The' 
alhance  with  the  National  City  Bank  had  pre- 
sumably been  established  by  1894,  and  although 
the  bank  was  by  no  means  in  a  position  of  such 
exceptional  power  as  at  present,  its  connections 
were  nevertheless  extensive.  ^^    Thus  the  members 
of  the  group  found  the  process  of  fortune  accu- 
mulation further  facilitated,  because  of  the  ease 

1897,  Vol.  XXX;  New  York  Tribune,  February  13,  1897.  For 
details  concerning  the  McKinley  properties  cf.  Iron  Age,  June  22, 
1893,  Vol.  LI,  p.  387.  Regarding  controversies,  cf.  Iron  Age,  May 
30,  1895,  Vol.  LV,  p.  1136;  Iron  Trade  Review,  June  6,  1895;  ibid., 
June  13,  1895.  Concerning  "terms  of  settlement,"  cf.  ibid.,  August 
15,  1895,  Vol.  XXVIII. 

lelt  had  a  large  representation  in  the  United  States  Trust 
Company  and  in  the  Farmer's  Loan  and  Trust  Company.  Its 
president,  James  Stillman,  was  a  director  of  the  New  York 
Security  and  Trust  Company,  and  two  of  its  directors  were  also 
on  the  board  of  the  Bank  of  the  State  of  New  York.  Moreover, 
William  Rockefeller  was  director  both  of  the  Hanover  National 
Bank  and  of  the  leather  Manufacturers'  National  Bank.  Other 
important  financiers  interested  in  the  bank  were  connected  with 
outside  ventures,  as  for  instance  the  Consolidated  Gas  Company, 
of  which  Percy  R.  Pyne  (president  of  the  National  City,  1882-91), 
and  Samuel  Sloan  (vice-president  of  the  National  City)  had 
been  directors  since  its  formation  in  1884.  That  the  National 
City  interests  in  this  company  in  1894  were  quite  heavy  is  evi- 


112  GREAT    FORTUNES. 

with  which  credit  accommodations  could  be  se- 
cured in  aid  of  new  projects. 

Sufficient  evidence  has  now  been  adduced  to 
make  it  apparent  that  by  1893  or  1894  Standard 
Oil  had  developed  into  an  important  investment 
power,  controlling  a  vast  amount  of  wealth. 
Standard  Oil  men  had  gained  entrance  into  rich 
ore  properties,  such  as  the  Minnesota  Iron  Com- 
pany and  the  Lake  Superior  Consolidated  Iron 
Mines  Company.  They  were  in  western  rail- 
roads, such  as  the  Northern  Pacific  and  the  Mis- 
souri, Kansas,  and  Texas.  They  had  holdings 
in.  eastern  roads  (the  New  York,  New  Haven 
and  Hartford,  the  Ohio  River  Railroad  Com- 
pany, and  the  Delaware,  Lackawanna  and  West- 

denced  by  the  fact  that  besides  the  two  men  just  mentioned, 
Roswell  G.  Rolston,  Moses  Taylor  Pyne,  and  James  Stillman  were 
on  its  directorate. 

The  National  City  contingent  also  figured  prominently  in  rail- 
roads. vStillman  had  long  been  interested  in  western  roads.  He 
was  director  of  the  Chicago,  Milwaukee  and  St.  Paul  from  187.9 
to  1889,  and  he  had  held  a  place  on  the  directorates  of  several 
smaller  railroads.  In  1893  he  became  director  of  the  Delaware, 
Lackawanna  and  Western,  with  which  William  Rockefeller  had 
been  connected  since  1890,  and  of  which  Samuel  Sloan  was  presi- 
dent at  the  time  (1893).  Moses  Taylor,  president  of  the  National 
City  from  1855  until  his  death  in  1882,  had  been  identified  with 
the  road  during  his  lifetime.  He  had  also  been  interested  in  the 
Western  Union  Telegraph  Company,  and  the  presence  of  Samuel 
Sloan  and  Percy  R.  Pyne  on  the  directorate  of  the  latter  com- 
pany in  1894  would  indicate  that  the  interest  of  the  National  City 
thus  acquired  had  not  been  relinquished. 

For  facts  concerning  Moses  Taylor,  cf.  Rhodes'  Journal  of 
Banking,  May,  1882;  Bankers  Magazine,  May,  1882;  for  the 
accession  of  Stillman  to  the  presidency  of  the  National  City,  see 
Bankers  Magazine,  December,  1891;  cf.  also  lists  of  directors  of 
Poor's  Manual  of  Railroads. 


GROUP    FORTUNES.  118 

ern).  Some  of  the  group  were  identified  with 
the  National  Lead  Company,  successor  to  the 
Lead  Trust,  1891;  others,  probably,  with  the 
American  Cotton  Oil  Company/'  Standard  Oil 
men  had  acquired  interests  in  street  railway  and 
electric-lighting  properties,  to  wit,  the  North 
American  Company  ;^^  and  finally  they  were  al- 
lied (more  correctly,  perhaps,  identified)  with 
the  financial  interests  in  control  of  the  National 
City  Bank  and  its  affiliated  institutions. 

17 The  American  Cotton  Oil  Trust  was  formed  in  1884.  It  was 
generall}^  believed  at  the  time  that  it  had  Standard  Oil  men 
among  its  backers,  although  no  substantial  evidence  was  adduced 
to  support  such  a  })elief.  Cf.  for  instance,  J.  S.  Jeans,  Trusts, 
Pools,  and  Comers,  Chap.  VIII,  p.  101.  It  is  reasonably  certain 
that  Standard  Oil  men  were  interested  in  the  National  Lead 
Trust.  Indeed,  W.  P.  Thompson,  at  one  time  secretary  of  the 
Standard  Oil  Company  of  Ohio,  became  president  of  the  Lead 
Trust  about  two  years  after  its  formation,  at  the  solicitation,  as 
he  himself  says,  of  Charles  Pratt  and  H.  H.  Rogers.  "In  1889 
my  friends,  H.  H.  Rogers  and  the  late  Charles  Pratt,  both  of 
whom  had  had  large  experience  in  the  lead  and  paint  business, 
knowing  that  I  was  about  to  retire  from  my  association  with  the 
Standard  Oil  Company,  called  my  attention  to  the  fact  that  the 
National  Lead  Trust  was  desirous  of  my  becoming  interested  with 
them."  Cf.  Depew,  One  Hundred  Years  of  American  Commerce, 
Vol.  II,  Chap.  LXIV,  p.  440,  The  Lead  Industry,  by  William 
P.  Thompson. 

isThe  North  American  Company  was  originally  intended  to 
take  over  the  assets  of  the  Oregon  and  Transcontinental  Com- 
pany. It  was  later  empowered  to  acquire  stock  of  street  rail- 
way and  lighting  properties.  Charles  L.  Colby,  the  first  vice- 
president  of  the  company,  had  been  frequently  associated  with 
Mr.  Rockefeller;  Colgate  Hoyt,  a  member  of  the  board  of  direc- 
tors, represented  the  Rockefeller  interests  in  the  Northern  Pacific; 
E.  D.  Bartlett  was  also  a  director. 

Iron  Age,  April  13,  18P3,  Vol.  LI,  p.  858;  cf.  also  Commercial 
and  Financial  Chronicle,  November  15,  1890,  Vol.  LI,  p.  680;  ibid., 
June  3,  1893,  Vol.  LVI,  p.  931. 


114  GREAT    FORTUNES. 

But  the  fact  that  the  group  had  secured  recog- 
nition as  a  force  in  the  investment  world  at  large 
did  not  mean  that  its  evolution  was  complete.  It 
was  merely  in  a  position  to  enter  upon  a  new  era 
of  wealth  expansion,  furnishing  some  striking 
parallelisms  with  the  early  period,  when  mem- 
bers of  the  Standard  Oil  Trust  were  struggling 
to  extend  their  hold  on  the  petroleum-refining  in- 
dustry. Then,  they  had  gained  in  wealth  and 
power  by  allying  themselves  with  their  most  im- 
portant competitors  in  the  field,  and  tlms  had 
come  to  enjoy  all  the  profits  incident  to  a  monoo- 
oly.  But  the  competitors  in  this  more  compre- 
hensive struggle  were  not  to  be  refiners  of  petro- 
leum, but  groups  of  financiers  representing  im- 
portant and  highly  diversified  industrial  and 
financial  interests.  Competition  among  these 
groups  was  quite  a  different  matter  from  compe- 
tition within  the  limits  of  a  single  industry,  cov- 
ering as  it  did  so  wide  an  investment  field.  Ob- 
viously, when  such  opposing  forces  contended 
one  against  another,  the  results  were  certain  to 
prove  much  more  far-reaching  than  if  the  several 
group  holdings  had  been  confined  to  but  one  line 
of  investment.  Should  "Standard  Oil"  secure  a 
position  of  dominance  among  these  competitive 
groups,  what  limits  could  be  placed  upon  the  pos- 
sibilities of  fortune  getting  held  out  to  its  mem- 


GROUP    FORTUNES.  115 

bers?  They  would  then  enjoy  monopolistic  ad- 
vantages, not  alone  within  a  single  industry,  but 
over  an  immense  field  of  trade  and  transporta- 
tion. 

It  is,  in  fact,  possible  to  trace  the  growth  of  a 
community  of  interests  and  to  adduce  certain 
facts  which  seem  to  indicate  that  this  particular 
group,  namely,  the  Standard  Oil,  may  sometime 
come  to  dominate  the  entire  investment  field,  as 
the  smaller  unit  long  ago  came  to  control  the  in- 
dustry of  petroleum  refining.  First,  however, 
it  will  be  necessary  to  touch  briefly  upon  certain 
facts  relating  to  a  number  of  the  important 
groups  of  investors  who  were  brought  into  rela- 
tions with  Standard  Oil  in  the  course  of  the  next 
few  years. 

In  1893,  a  date  which  marks  a  turning  point  in 
the  financial  history  of  the  country,  the  Goulds 
and  the  Vanderbilts  were  still  in  the  ascendancy. 
The  men  in  control  of  the  Pennsylvania  Railroad 
were  also  a  force  in  the  community,  while  Hunt- 
ington in  the  Southern  Pacific  wielded  a  power- 
ful one-man  control.  But  all  these  interests,  ex- 
tensive though  they  might  be,  were  more  or  less 
jealously  confined  to  a  single  investment  field- 
railroads.  The  Vanderbilt  power  was  grounded 
almost  exclusively  upon  its  control  of  the  New 
York  Central  and  subsidiary  lines.     Outside  of 


116  GREAT    FORTUNES. 

the  Western  Union  Telegraph  Company,  the 
Goulds  may  be  said  to  have  had  no  important 
holdings  in  other  than  railroad  securities.  Harri- 
man  had  not  yet  been  spoken  of  in  connection  with 
Standard  Oil,  and  the  Moores  were  unknown  save 
as  organizers  of  the  New  York  Biscuit  and  Dia- 
mond Match  companies.^®  Morgan  was  still  in 
a  subordinate  position  as  an  ally  of  the  Vander- 
bilts.  In  fact,  the  firm  of  Drexel,  Morgan  and 
Company,  though  well  established  and  enjoying 
influential  financial  connections,  had  apparently 
been  chiefly  occupied  up  to  that  time  with  plac- 
ing the  investments  of  its  rich  clients.  Nothing 
had  been  heard  of  the  so-called  Morgan  railway 
systems,  steamship  lines,  or  steel  trusts.  But 
>ywith  the  financial  disturbances  of  1893,  which 
led  to  the  bankruptcy  of  so  many  railroads,  came 
the  rise  of  the  Morgan  group  as  an  independent 
investment  power — a  development  almost  spec- 
tacular in  its  suddenness. 

The  first  of  the  railroad  reorganizations  un- 
dertaken by  the  firm  was  that  of  the  Richmond 
and  West  Point  Terminal  Railway  and  Ware- 
house Company.  In  this  case  the  security  hold- 
ers themselves  made  application  to  Drexel,  Mor- 


i»For  accounts  of  illegitimate  speculation  in  the  stocks  of  these 
companies  carried  on  by  the  Moores,  cf.  Commercial  and  Financial 
Chronicle,  August  29,  1896,  and  October  10,  1896. 


GROUP    FORTUNES.  117 

gan  and  Company,  who,  after  one  refusal,  at 
length  agreed  early  in  1893  to  take  charge  of  the 
reorganization,  upon  assurances  of  a  strict  com- 
pHance  with  their  terms. ^^  By  the  close  of  1894 
the  new  Southern  Railway  Company  had  been 
estabhshed,  to  operate  upon  a  more  conservative 
financial  basis  than  its  bankrupt  predecessor. 
The  stock  of  the  company  was  placed  in  the 
hands  of  a  voting  trust  consisting  of  J.  P.  Mor- 
gan, George  F.  Baker  (president  of  the  First 
National  Bank  of  New  York) ,  and  Charles  La- 
nier,^^  while  Messrs.  Spencer,  Wright  and  Cos- 
ter, all  of  the  firm  of  Drexel,  Morgan  and  Com- 
pany, were  placed  on  the  board  of  directors. ^^ 
The  reorganization  resulted  in  the  Morgan  inter- 
est being  left  in  control  of  a  road  that  later  de- 
veloped into  one  of  the  great  railway  systems  of 
the  country. 

In  February,  1893,  the  Philadelphia  and 
Reading — the  most  important  of  the  anthracite 
coal  roads — went  into  bankruptcy.  It  was  re- 
ported that  Morgan- Vanderbilt  interests  had  se- 
cured control  of  the  company,  but  this  report 


20Brad8treefs,  April  22,  1893,  Vol.  XXI,  p.  243;  May  27,  1893; 
Vol.  XXI,  p.  329. 

^'^ Commercial    and   Financial    Chronicle,    November    10,    1894, 
Vol.  LIX,  p.  836. 

22/6id.,  October  2T,  1894,  Vol.  LIX,  p.  739. 


118  GREAT    FORTUNES. 

was  vigorously  denied  at  the  time.  Morgan, 
however,  eventually  undertook  to  adjust  the 
finances  of  the  road,^^  and  it  was  thought  that  he, 
as  well  as  others  associated  with  him,  secured 
large  amounts  of  the  stock  and  preference  bonds 
thrown  on  the  market  by  holders  unwilling  to  pay 
the  twenty  per  cent,  assessment  announced  under 
the  reorganization  plan.^*  The  road  was  sold 
under  foreclosure,  September,  1896,  together 
with  the  Philadelphia  and  Reading  Coal  and  Iron 
Company,  and  was  purchased  by  the  reorganiza- 
tion committee  for  $20,500,000.^'  When  the  re- 
organization was  completed,  the  stock  of  the  new 
Reading  Company,  which  took  over  the  securi- 
ties of  the  older  road  and  its  subsidiary  proper- 
ties, was  deposited  with  a  voting  trust  consisting 
of  J.  P.  Morgan,  F.  P.  Olcott,  president  of  the 
Central  Trust  Company,  and  one  other  selected 
by  them.  The  first  board  of  managers,  moreover, 
contained  three  strong  Morgan  representatives.^^ 

'^^Bradstreet's,  July  13,  1895,  Vol.  XXIII,  p.  437. 

•^^Bradstreet's,  December  21,  1895,  Vol.  XXIII,  p.  805;  cf.  also 
Poor's  Manual  of  Railroads,  1896,  pp.  805,  806. 

"^^ Commercial  and  Finaatcial  Chronicle,  September  26,  1896,  Vol. 
LXIII,  p.  560. 

26C.  II.  Coster,  F.  L.  Stetson,  and  George  C.  Thomas.  (Cf. 
Poor's  Manual  of  Railroads,  1896  and  1897.)  In  1901  Morgan 
secured  control  of  the  Central  of  New  Jersey  and  turned  it  over 
to  the  Reading,  upon  payment,  it  is  said,  of  a  most  adequate 
compensation.  Cf.  Report  of  the  Industrial  Commission,  Vol. 
XIX,  p.  461,  1902:  "According  to  competent  testimony  before  the 


GROUP    FORTUNES.  119 

Similarly,  the  New  York,  Lake  Erie  and 
Western,  which  went  into  the  hands  of  a  receiver 
shortly  after  the  Reading  bankruptcy,  came  with- 
in Morgan's  power,^^  as  did  the  Hocking  Valley, 
which  defaulted  in  its  interest  payments  in 
1897."^  Later  in  the  same  year  Morgan's  as- 
sistance was  invoked  again  in  behalf  of  the  Le- 
high Valley  Railroad,  as  it  was  thought  that,  in 
view  of  the  control  he  had  come  to  exercise  over 
certain  coal  roads,  it  would  be  to  his  interest  to 
preserve  the  solvency  of  all  of  them.^^  However 
that  may  be,  the  banking  house  of  J.  P.  Morgan 


Industrial  Comraission,  the  price  paid  to  the  banking  house  of 
J.  P.  Morgan  and  Co.,  which  secured  control  of  the  shares  before 
selling  them  to  the  Reading  Co.,  was  the  highest  in  the  history  of 
the  Central  Railroad  of  New  Jersey." 

2  7 J.  P.  Morgan,  I^ouis  Fitzgerald,  president  of  the  Mercantile 
Trust  Company,  and  Sir  Charles  Tennant,  held  the  stock  of  the 
Erie  in  a  voting  trust,  while  Charles  Coster,  E.  B.  Thomas,  Samuel 
Spencer,  and  F.  L.  Stetson  were  amon":  the  directors.  The  syndi- 
cate in  charge  of  the  reorganization  agreed  to  provide  $10,000,000 
for  assessments  on  all  stock  not  assenting  to  the  plan  proposed 
and  to  take  $15,000,000  new  prior  lien  bonds.  Bradstreet's,  August 
31,  1895. 

2  8The  Hocking  Valley  defaulted  in  the  interest  payments  on 
its  consolidated  5's,  of  which  Mr.  Morgan  was  said  to  have  been 
the  largest  Individual  holder,  although  he  also  owned  a  consid- 
erable amount  of  preferred  stock.  Cf.  Commercial  and  Financial 
Chronicle.  February  20,  1897,  Vol.  LXIV;  February  27,  1897, 
Vol.  LXIV. 

2  9lndeed,  it  v/as  said  at  the  time  that  through  the  absolute 
power  of  the  Morgan  interests  in  the  Reading  and  the  representa- 
tion which  allied  financial  powers  (Standard  Oil  and  Vanderbilt 
representatives?)  had  obtained  in  the  Delaware  and  Hudson  and 
the  Delaware,  Lackawanna,  and  Western,  it  was  believed  that  fully 
t>0  per  cent,  of  the  anthracite  coal  production  of  the  country  was 
in  his  hands.    Cf.  Bradstreet's,  July  17,  1897,  Vol.  XXV,  p.  453. 


120  GREAT    FORTUNES. 

and  Company  agreed  to  adjust  the  finances  of 
the  road^^ — a  task  which  was  successfully  per- 
fonned,  and  by  the  beginning  of  January,  1901, 
Morgan  men  had  come  into  undisputed  control 
of  this  company.^^  Still  another  of  the  roads  that 
went  under  during  the  period  from  1893  to  1897 
came  under  the  Morgan  influence.  It  was  the 
Northern  Pacific,  which  became  insolvent  in 
1893,  but  because  of  complications  due  to  the 
appointment  of  numerous  receivers  with  con- 
flicting duties,  was  not  reorganized  until  1896, 
when  the  plan  brought  forward  by  J.  P.  Mor- 
gan and  Company,  with  the  co-operation  of  the 
Deutsche  Bank  of  Berlin,  was  successfully  exe- 
cuted.^^  As  a  result  of  his  interest  in  the  North- 
ern Pacific,  Morgan  first  came  into  relations  with 
James  J.  Hill,  president  of  the  Great  Northern, 
who  was  supposed  to  have  bought  largely  of  the 
Northern  Pacific  securities  the  year  before.^^ 
The  two  roads  under  the  leadership  of  Morgan 
and  Hill,  respectively,  thus  came  into  harmonious 


soCommercial  and  Financial  Chronicle,  March  13,  1897,  Vol. 
LXIV,  p.  516. 

siCommercial  and  Financial  Chronicle,  June  24,  1899,  Vol. 
LXVIII,  p.  1226;  January  12,  1901,  Vol.  LXXII,  p.  87. 

^^Poor's  Marmal  of  Railroads,  1896.  The  syndicate  subscribed 
?45,000,000  for  the  purpose  of  carrying  the  plan  through  and  of 
providing  for  working  capital  and  improvements. 

^  ^Commercial  and  Financial  Chronicle,  May  18,  1895,  Vol.  LX, 
p.  874. 


GROUP    FORTUNES.  121 

relationship  some  time  before  the  Northern  Se- 
curities Company  was  formed. 

By  the  end  of  1897,  as  a  result  of  the  panic        . 
conditions  of  the  preceding  four  years,  Mr.  Mor-  \/ 
gan  together  with  his  associates  had  succeeded  in 
gaining  a  position  of  pre-eminence  among  the  im- 
portant railroad  groups  of  the  country.       He 
either  had  control,  or  was  in  a  fair  way  to  gain 
control,  of  four  important  coal  roads — the  Read- 
ing, the  Erie,  the  Lehigh,  the  Hocking  Valley. 
He  held  chief  place  in  the  Southern  Railway  and 
in  the  Northern  Pacific  system;  and  he  had  come 
into  amicable  contact  with  James  J.  Hill,  of  the 
Great  Northern.^"*    A  record  such  as  this  affords\ 
an  excellent  illustration  of  the  ease  with  which 
powerful  financiers  (or  individuals  with  power- 
ful financial  backing)  can  enlarge  their  holdings 
in  time  of  crisis.     Then  it  is  that  opportunities      }/ 
for  investment  abound,  and  large  capitalists  com- 
ing to  the  aid  of  the  financially  embarrassed  may 
freely  dictate  their  own  terms,  in  many  cases  de- 
manding a  controlling  interest  in  the  companies/ 
requiring  assistance. 


3*His  railroad  holdings  have  continued  to  enlarge  since  that 
time.  The  Southern  Railway  has  made  large  additions  to  its 
mileage  by  the  annexation  of  other  roads.  In  1902  Morgan  came 
into  control  of  the  Louisville  and  Nashville,  acquiring  his  interests 
from  John  W.  Gates.  Bradstreefs,  October  4,  1902,  Vol.  XXX, 
p.  627, 


122  GREAT    FORTUlSrES. 

While  the  Morgan  group  was  striding  so  rap- 
idly into  prominence,  Standard  Oil  had  been 
strengthening  its  hold  on  properties  already  ac- 
quired. It  had  also  entered  into  important  con- 
tracts with  the  Oliver  Iron  Mining  Company,^^ 
which  was  engaged  in  extensive  operations  on 
the  Mesaba;  and  it  had  materially  extended  its 
gas  interests,  notably  in  the  Brooklyn  Union  Gas 
Company,^^  incorporated  in  1895  for  the  purpose 
of  taking  over  control  of  the  various  gas  compa- 
nies of  that  city.  The  same  period  (1893-97) 
saw  the  rise  of  another  important  group  of  finan- 
ciers— the  Harriman-Kuhn-Loeb  syndicate, 
which  was  soon  to  become  generally  recognized 
as  a  part  of  the  larger  Standard  Oil  group.^^ 
The  syndicate  first  attracted  public  attention  as 
a  result  of  its  successful  reorganization  of  the 

3RAt  that  time  five-sixths  of  the  stock  of  the  Oliver  Iron 
Mining  Company  was  owned  by  the  Carnegie  Steel  Company.  Cf. 
James  H.  Bridge,  History  of  the  Carnegie  Steel  Company,  Chap. 
XVTI,  pp.  258-60. 

36 Commercial  and  Financial  Chronicle,  June  15,  1895,  Vol.  LX, 
p.  1057;  ibid.,  Sept.  14,  1895,  Vol.  LXI,  p.  473. 

3"Of  the  early  history  of  this  group  I  am  ignorant.  I  have 
seen  a  statement  to  the  effect  that  its  nucleus  was  the  Illinois  Cen- 
tral Railroad,  of  which  Harriman  had  been  a  director  since  1883. 
Cf.  Commercial  and  Financial  Chronicle,  November  30,  1901,  Vol. 
LXXIII,  p.  1138;  cf.  also  Poor's  Manual  of  Railroads,  1883.  As 
to  whether  Harriman  and  the  banking  house  of  Kuhn,  Loeb  and 
Co.  had  any  connection  with  Standard  Oil  prior  to  the  reorganiza- 
tion of  the  Union  Pacific,  I  cannot  say.  Subsequent  to  the  com- 
pletion of  that  reorganization  in  1897  there  is  no  doubt  that  Harri- 
man became  the  recognized  representative  of  Standard  Oil  railroad 
interests. 


GROUP    FORTUNES.  128 

Union  Pacific.  As  early  as  1895  it  had  been 
formed  to  carry  out  some  plan  looking  toward  a 
rehabilitation  of  the  financial  standing  of  the 
road,  but  nothing  was  accomplished  until  the 
property  was  sold  under  foreclosure  in  1897.  It 
was  then  bought  in  by  a  reorganization  commit- 
tee which  was  in  agreement  with  the  syndicate 
headed  by  Kuhn,  Loeb  and  Company.^^ 

After  the  reorganization  had  been  carried 
through  by  the  latter,  E.  H.  Harriman  appeared 
as  chairman  of  the  executive  committee,  of  which 
James  Stillman  was  also  a  member.  Representa- 
tives of  the  Gould  interests,  which  had  again 
gained  control  of  the  Union  Pacific  in  1890,^^  still 
held  place  on  the  board  of  directors,  but  tliey 
were  evidently  no  longer  of  first  importance.  It 
was  significant,  however,  that  there  should  be 
found  identified  with  a  single  property  adherents 
of  three  different  groups.  Clearly  indications 
were  not  lacking  of  the  manner  in  which  there  was 
gradually  to  be  brought  about  an  advance  toward 
an  increasingly  comprehensive  form  of  combina- 
tion, for  the  purpose  of  acquiring  the  gains  made 
possible  by  a  wide  extension  of  investments. 

3 8 On  agreement  with  the  reorganization  committee  this  syndi- 
cate provided  $44,000,000  in  cash,  receiving  in  return  for  each 
$1,000"  advanced,  $1,000  par  value  4  per  cent,  first-mortgage  bonds 
and  $500  par  value  preferred  shares  of  the  company. 

s^Commercial  and  Financial  Chronicle,  November  29,  1890,  Vol. 
LI,  p.  748;  directors'  lists  in  Poor^s  Manual  of  Railroads. 


124  GREAT    FORTUNES. 

Along  with  the  growth  of  the  railroad  inter- 
ests a  new  movement  began  to  develop  about  the 
beginning  of  1898;  for  with  the  return  of  pros- 
perity after  a  period  of  prolonged  financial  dis- 
tress there  was  a  marked  launching  out  of  the  va- 
rious groups  of  investors  into  the  field  of  the  "in- 
dustrials." Some  years  before,  adverse  court  de- 
cisions had  led  to  the  abrogation  of  all  trust 
agreements  which  had  for  the  most  part  been 
succeeded  by  holding  companies  made  possible 
by  the  New  Jersey  law  of  1889.^^  A  few  new 
companies  had  also  been  formed,  such  as  the  Dia^ 
mond  Match  Company  and  the  New  York  Bis- 
cuit Company  (both  Moore  organizations),  but 
as  yet  the  holding  company  was  not  an  important 
factor  in  the  industrial  field. 

But  with  the  inauguration  of  the  era  of  the 
so-called  "industrials"  came  notable  combinations 
in  the  iron  and  steel  trades.  J.  P.  Morgan  and 
Company  and  their  allies,  having  acquired  an  as- 
sured position  in  the  railroad  world,  now  made 
their  entry  into  the  field  of  the  industrials  as  or- 
ganizers of  Federal  Steel  (September,  1898).^^ 

*ollie  Standard  Oil  organization  existed  without  taking  advan- 
tage of  the  New  Jer.sey  law  until  1899,  a  community  of  interests 
being  maintained  through  the  manner  of  distribution  of  the  stocks 
of  the  various  companies  composing  the  "trust." 

4iThe  stocks  of  the  companies  it  was  proposed  to  combine 
having  been  secured  (or,  at  any  rate,  a  sirficient  proportion  of 
them)  werp  then  turned  over  to  the  new  corporation  together  with 


GROUP    FORTUNES.  125 

It  was  said  that  the  profits  of  the  firm  derived 
from  its  services  in  organizing  were  about  $200,- 
000/^  but,  apart  from  that  consideration,  the 
Morgan  representation  on  the  directorate  of  Fed- 
eral Steel  would  indicate  that  a  very  substantial 
interest  in  the  company  had  been  acquired,  al- 
though Standard  Oil  men  were  no  doubt  the 
dominant  factor.*^ 

The  year  following  the  formation  of  the  Fed- 
eral Steel  Company,  Morgan  succeeded  in  unit- 
ing the  leading  tube  works  of  the  country  into  a 
single  organization,  the  National  Tube  Com- 
pany,^* and  in  April,  1900,  he  assumed  charge  of 


$14,075,000  in  cash  (such  part  as  was  not  furnished  by  stock 
assessments  being  guaranteed  bj^  Morgan).  In  return,  $53,000,000 
preferred  and  ^6,000,000  common  stock  of  the  Federal  Steel 
Company  was  received  by  the  organizers  to  be  used  in  paying  for 
the  underlying  properties. 

42Report  of  the  Industrial  Commission,  Vol.  I,  pp.  986  ff. 
(testimony  of  Judge  Gary). 

43ln  substantiation  of  this  statement  it  may  be  mentioned 
that  Standard  Oil  men  had  been  connected  with  the  Minnesota 
Iron  Company  (an  important  underlying  property  of  Federal 
Steel)  since  1887.  Moreover,  H.  H.  Rogers  was  a  member  of  the 
executive  committee  of  Federal  Steel,  and  Roswell  P.  Flower,  who 
had  come  to  be  closely  identified  with  Standard  Oil  financiers 
through  his  copper  interests,  was  a  large  holder  of  the  company's 
stock.  After  his  death,  in  May,  1899,  it  is  probable  that  the 
Standard's  hold  on  the  property  was  materially  strengthened.  Cf. 
Bradstreet's,  May  20,  1899,  Vol.  XXVII,  p.  306;  September  30, 
1899,  Vol.  XXVII,  p.  612. 

44Standard  Oil  men  were  certainly  associated  with  this  enter- 
prise, if  the  presence  of  Daniel  O'Day,  connected  with  the  Stand- 
ard Oil  pipe-line  system,  and  Jacob  Vandergrift,  one-time  presi- 
dent of  the  United  Pipe  Lines  Co.,  on  the  directorate  of  tu.; 
company  can  be  considered  in  the  least  significant. 


126  GREAT    FORTUNES. 

the  underwriting  for  another  large  steel  "trust," 
the  American  Bridge  Company.^^  During 
this  same  prolific  period  W.  H.  and  J.  H.  Moore 
sprang  into  prominence  as  organizers  of  the 
American  Tin  Plate,  National  Steel  (February, 
1899),  American  Steel  Hoop  (April,  1899),  and 
American  Sheet  Steel  (March,  1900)  compa- 
nies*®— all  four  of  which  came  to  be  controlled 
by  the  small  coterie  of  men  for  whom  the  JNIoores 
had  been  acting.*^  The  only  other  important 
steel  combination  prior  to  the  formation  of  the 


45Both  in  the  case  of  the  National  Tube  Company  and  in  that 
of  the  American  Bridge  Co.,  Morgan  was  given  power  to  direct 
their  policy  absolutely  for  a  stated  number  of  months ;  nine  montiis 
in  the  case  of  the  former,  and  eighteen  months  in  the  case  of  the 
latter. 

46 Judge  Moore  explained  the  manner  in  which  these  organiza- 
tions were  effected,  as  follows:  "I  will  not  charge  you  anything,' 
he  reports  himself  as  having  said  to  the  owners  of  the  companies 
it  was  proposed  to  unite.  "I  will  buy  your  properties  and  fonnu- 
late  a  plan,  and  if  you  do  not  want  to  go  into  the  new  plan,  you 
can  take  cash."  (Cf.  testimony  of  W.  H.  Moore,  Report  of  the 
Industrial  Commission,  Vol.  I,  p.  963.) 

47The  nucleus  of  the  Moore  group  consisted  of  certain  iron 
and  steel  manufacturers  interested  at  one  time  in  the  various 
companies  that  went  to  make  up  the  four  new  combinations.  The 
group  later  extended  its  investments,  branching  out  into  the 
domain  of  railroads.  It  bought  control  of  the  Chicago,  Rock 
Island  and  Pacific  (1901),  reorganized  it  as  the  Rock  Island 
Company,  and  took  over  other  properties,  purchasing  tlie  St.  Louis 
and  San  Francisco  (May,  1903,),  and  entering  into  an  alliance 
with  the  Seaboard  Air  Line  the  next  October.  The  financiers 
composing  the  group  are,  however,  relatively  weak,  and  the 
chances  are  that  they  are  scarcely  in  a  position  to  be  considered 
an  independent  power  at  the  present  time.  In  all  probability 
their  railroad  management  has  come  under  the  tutelage  of 
Standard  Oil. 


GROUP   FORTUNES.  127 

United  States  Steel  Corporation  was  the  Amer- 
ican Steel  and  Wire  Company  (1899),  at  whose 
head  stood  John  W.  Gates. 

As  the  panic  of  1893  made  for  a  growth  both 
in  the  diversity  and  in  the  size  of  the  fortunes  of 
particular  financiers,  so  the.  industrial  depression, 
which  set  in  toward  the  close  of  1899  and  con- 
tinued through  1900,  was  occasion  of  profit  to 
certain  wealthy  groups  of  investors  who  coerced 
certain  other  groups  into  alliance  with  them.  At 
that  time,  conditions  within  the  iron  and  steel 
trades  were  peculiarly  severe,  and  with  so  many 
important  groups  of  investors  represented  there- 
in, a  competitive  struggle  on  a  more  comprehen- 
sive scale  than  ever  before  experienced  might 
be  fairly  deduced.  As  a  matter  of  fact,  the  for- 
mation of  the  United  States  Steel  Company  in 
1901  seems  to  have  been  the  outgrowth  of  some 
such  struggle. 

The  evidence  points  strongly  in  the  direction  of 
a  shrewdly  planned  attack  by  the  joint  Carnegie- 
Rockefeller  forces  against  the  other  groups  in- 
terested. In  order  to  understand  the  situation, 
it  is  necessary  to  enter  somewhat  minutely  into 
the  relations  formerly  existing  between  the  Car- 
negie and  the  Rockefeller  interests  in  the  Minne^ 
sota  iron  regions.  The  Oliver  Iron  Mining  Com- 
pany, a  Carnegie  property,  which  was  one  of  the 


i^ 


128  GREAT   FORTUNES. 

largest  shippers  of  ore  on  the  Mesaba  range,  had 
in  1896,  made  a  fifty-year  contract  with  the  Lake 
Superior  Consolidated  Iron  Mines  Company, 
whereby,  upon  payment  of  a  certain  royalty,  it 
obtained  possession  of  two  rich  mines  on  the  Me- 
saba, guaranteeing  in  return  a  minimum  annual 
output  of  600,000  tons  of  ore,  to  be  shipped  over 
the  Rockefeller  road,  the  Duluth,  Missabe,  and 
Northern,  and  carried  in  vessels  belonging  to  the 
Rockefeller  fleet/*  These  shipments,  together 
with  the  output  from  the  Oliver  mines,  ensured 
an  annual  tonnage  of  from  1,200,000  to  1,500,000 
tons.^^ 

Although  the  Lake  Superior  Consolidated 
Iron  Mines  Company  continued  to  increase  the 
carrying  capacity  of  its  lake  fleets  for  some  years 
subsequent  to  this  contract,  it  was  by  no  means 
secure  in  its  hold  upon  the  transportation  of  the 
Carnegie  ore.  By  1899  the  Oliver  Iron  Mining 
Company  had  by  the  acquirement  of  new  hold- 
ings attained  to  an  average  annual  output  of 
perhaps  4,000,000  or  4,500,000  tons  of  ore,^^  and, 
obviously  it  would  be  advantageous  to  carry  such 
part  of  its  own  output  as  had  not  been  disposed 

48jron  Age,  December  31,  1896,  Vol.  LVIII,  pp.  1309,  1310; 
James  H.  Bridge,  The  Inside  History  of  the  Carnegie  Steel  Com- 
pany, Chap  XVJI,  p.  259. 

*9lron  Trade  Review,  March  11,  1897,  Vol.  XXX. 

60lbid.,  April  37,  1899,  Vol.  XXXII. 


GROUP    FORTUNES.  129 

of  by  contract.  Accordingly,  the  properties  of 
the  Lake  Superior  Iron  Company  were  bought, 
and  with  them  its  fleet  of  six  vessels,  which  were 
turned  over  to  the  newly  formed  Pittsburg 
Steamship  Company  (1899)"'— by  1900  the 
third  largest  fleet  on  the  lake.^- 

It  now  began  to  be  rumored  that  not  so  long 
before  this  time,  Mr.  Rockefeller  had  offered  to 
sell  his  large  ore  properties  as  well  as  his  steam- 
ship and  railway  holdings  to  Mr.  Carnegie  for 
$50,000,000,  and  that  it  was  the  refusal  of  this 
offer  which  led  to  the  adoption  of  coercive  meas- 
ures, taking  shape  in  an  attempt  to  corner  the 
lake  shipping  in  1900.^^  However  that  may  be, 
the  Bessemer  Steamship  Company  (the  fleet  of 
The  Lake  Superior  Consolidated  Iron  Mines 
Company)  purchased  in  the  fall  of  1899  the 
thirty  vessels  of  the  American  Steel  Barge  Com- 
pany, and  these,  together  with  the  twenty-four 
or  more  already  owned,  gave  it  a  dominant  posi- 
tion in  the  lake  ore  shipping.  The  ore  of  the 
Oliver  Iron  Mining  Company  shipped  under  the 
contract  of  1896  was  taken  at  a  rate  which  was 
an  average  of  the  wild  and  contract  rates  of  each 
season.     In  an  endeavor  to  keep  up  the  ^vild 

51/row  Trade  Review,  November  16,  1899,  Vol.  XXXII. 
5  2/ro«  Age,  May  10,  1900,  p.  5,  Vol.  LXV. 
63/ro»  Age,  October  19,  1899,  p.  300,  Vol.  LXIV. 


130  GREAT    FORTUNES. 

rates  so  as  to  force  this  ore  to  pay  a  lake  tonnage 
of  $1.25,  all  but  twenty  of  the  vessels  owned  by 
the  Bessemer  Steamship  Company  were  laid 
up.^*  As  a  result  of  this  action  the  Carnegie 
Company  made  public  its  intention  of  building 
its  own  railroad  from  the  Minnesota  mines  to  the 
lake.  Furthermore,  it  was  announced  (July, 
1900)  that  the  Carnegie  Company  proposed  the 
erection  of  "what  would  probably  be  the  larg- 
est rod-mill  ever  built."^^  The  bearing  of  this 
proposal  upon  the  situation  becomes  apparent  if 
it  be  remembered  that  the  plan  to  build  a  rod- 
mill  would,  if  carried  out,  put  a  serious  compet- 
itor in  the  field  against  the  Federal  Steel  Com- 
pany— a  property  in  which  Standard  Oil 
interests  were  prominent.  As  matters  stood,  both 
sides  bade  fair  to  prove  losers  in  the  pending 
struggle,  and  there  was  little  reason  for  surprise 
when  it  was  announced  in  August  that  harmony 
had  been  once  more  decreed  and  new  and  satisfac- 
tory traffic  agreements  entered  into.^^  The  ami- 
cable working  arrangements  thus  effected  be- 
tween the  two  interests  continued  from  this  time 
on   until   both   were    absorbed  into  the  United 


64Jro»  Age,  June  14,  1900,  p.  26  f..  Vol.  LXV. 
^^Commercial   arid   Financial   Chronicle,   July  28,    1900,    Vol. 
LXXI,  p.  184. 

56Jro7i  Age,  August  9,  1900,  p.  4,  Vol.  LXVI. 


UNIVERS/TY 

GROUP    FORTUNES.  131 

States  Steel  Company.  Whether  the  formation 
of  the  latter  was  hastened  because  of  this  union 
is  a  question  open  for  debate.  But  certainly, 
apart  from  any  active  personal  support  which 
Mr.  Carnegie  may  have  received  in  his  efforts  to 
dispose  of  his  holdings,^^  the  increased  control 
over  the  ore  situation  obtained  by  his  alHance 
with  the  Rockefeller  interests  added  to  the  strate- 
gic value  of  his  position. 

The  campaign  of  aggression,  initiated  in  1900 
with  an  attack  upon  the  Federal  Steel  and  the 
American  Steel  Hoop  companies,^^  was  contin- 
ued without  abatement  from  this  time  forth. 
The  situation  was  peculiarly  favorable,  indeed, 
to  the  success  of  Mr.  Carnegie's  plans.  In  the 
earlier  part  of  the  year  the  iron  and  steel  trades 
had  suffered  a  relapse  from  a  condition  of  over- 
stimulated  prosperity,  and  it  needed  only  the  clos- 
ing of  the  mills  of  the  American  Steel  and  Wire 
Company  "on  account  of  an  excessive  accumula- 
tion of  suppKes"^^  to  start  a  decline  in  the  prices 
of  steel  stocks.    By  the  end  of  June,  1900,  quo- 


5  7He  was  admittedly  anxious  to  "sell  out." 

58The  American  Steel  Hoop  Co.  was  hit  by  the  suggestion 
that  the  Carnegie  Co.  "might  go  into  the  manufacture  of  hoops 
and  bands."  Cf.  Commercial  and  Financial  Chronicle,  July  28, 
1900,  Vol.  LXXI,  p.  1840, 

fi^  Commercial  and  Financial  Chronicle^  April  28,  1900,  Vol. 
LXX,  p.  843. 


132  GREAT    FORTUNES. 

tations  had  been  cut  down  more  than  half  in  the 
case  of  the  common  stocks,  and  preferred  hold- 
ings had  lost  from  13  to  20  points.  In  Novem- 
ber, when  speculative  securities  were  just  begin- 
ning to  be  salable  once  more,^^  the  Carnegie  Com- 
pany made  further  announcement  of  its  intention 
to  manufacture  sheet  steel,  steel  wire  and  nails, 
and  steel  pipes — an  intention  which,  if  carried 
out,  was  likely  to  produce  a  general  demoraliza- 
tion in  steel  stocks.  The  Morgan  interests  were 
endangered  as  well  as  the  Moore  and  Gates  prop- 
erties, and  consternation  was  widespread.  When, 
therefore,  the  Carnegie  Company,  early  in  Jan- 
uary, 1901,  announced  the  immediate  construc- 
tion of  large  tube-works  at  Conneaut,^^  Mr.  Mor- 
gan, as  the  representative  of  the  National  Tube 
Company,  as  well  as  of  other  organizations  that 
had  been  threatened,  was  compelled  to  enter  into 
negotiations  looking  toward  the  purchase  of  the 
Carnegie  holdings.^"  By  the  end  of  February, 
a  consolidation  of  the  leading  steel  companies  of 
the  country  was  announced,  with  J.  P.  Morgan 
and  Company  as  organizers.  It  is  no  surprise  to 
learn  that  the  property  of  the  Carnegie  Company 
was  taken  over  at  an  exceedingly  liberal  valua- 

eoMeade,  Trust  Finance,  Chap.  XI,  pp.  213  ff. 
6i/ro»  Trade  Review,  January  10,  1901,  Vol.  XXXIV. 
62jro»  Age,  February  7,  1901,  p.  33,  Vol.  LXVII. 


GROUP    FORTUNES.  138 

tion,  Mr.  Carnegie  alone  receiving  approximate- 
ly $217,720,000  in  5  per  cent,  first-mortgage  gold 
bonds  for  his  individual  holdings.^^  As  for  the 
rest  of  the  companies  incorporated,  the  Lake  Su- 
perior Consolidated  Iron  Mines  obtained  the 
most  favorable  terms,^*  although  the  majority 
secured  bonuses  both  in  preferred  and  in  com- 
mon stock. 

Notwithstanding  the  resultant  condition  of 
inflation,  it  was  thought  that  the  Morgan  syn- 
dicate had  reaped  an  immense  profit  as  the  re- 
sult of  its  operations.^^  But  this  belief  was  con- 
siderably shaken  by  the  proposed  bond-conver- 
sion scheme  of  the  following  year,®^  and  subse- 
quent events  served  to  strengthen  a  gradually 
growing  conviction  that  Morgan  had  not  acted 

6  3 J.  H.  Bridge,  The  Inside  History  of  the  Carnegie  Steel 
Company,  Chap.  XXIII,  pp.  363,  364;  also  Moody,  The  Truth 
About  the  Trusts,  p.  154. 

*i^Moody's  Mamial  of  Corporation  Securities,  1904,  p.  1616. 

«5Some  estimates  put  its  gain  as  high  as  $56,500,000  (Iron 
Age,  February  6,  1902;  of.  also  Commercial  and  Financial  Chron- 
icle, May  2,  1903,  Vol.  LXXVI,  p.  97T). 

66 The  plan  (ratified  May,  1902,)  contemplated  the  exchange  at 
par  of  $2,000,000  of  7  per  cent,  cumulative  preferred  stock  of 
the  corporation  for  5  per  cent,  second-mortgage  gold  bonds.  As 
a  result  of  litigation  it  did  not  go  into  effect  until  March,  1903. 
From  May  16  to  November  19  the  syndicate  enjoyed  the  sole 
right  of  conversion.  It  is  estimated  that  it  exchanged  $104,300,000 
of  stock  during  a  period  in  which,  although  bond  quotations  were 
falling,  prices  of  preferred  stock  were  falling  relatively  even 
lower.  The  conversion  plan  may  have  been  merely  a  clever  profit- 
making  device  or  it  may  have  been  a  desperate  remedy  adopted 
by  men  laden  with  securities  of  which  they  were  unable  to  dis- 


134  GREAT    FORTUNES. 

altogether  as  a  voluntary  agent.    Perhaps  he  had 

been  "held  up,"  so  to  speak,  and  forced  to  take 

over  properties  at  a  valuation  that  later  made  it 

difficult  to  dispose  of  the  securities  of  the  new 

company  to  advantage.        Opinions  upon  this 

f  point  may  vary,  however,  but  that  the  organiza- 

\  tion  of  the  United  States  Steel  Company  was 

undertaken  primarily  for  the  purpose  of  secur- 

V       ing  harmony  among  the  several  groups  interested 

in  the  underlying  companies  is  a  conclusion  fairly 

deducible  from  a  consideration  of  the  incidents 

leading  up  to  the  consohdation. 

It  is  not  possible  even  to  indicate  all  the  other 
lines  of  corporate  investment  which  these  same 
financiers  were  entering  during  the  period  from 
1897  and  1898  onward.  Some  of  the  new  hold- 
ings which  were  being  acquired  by  the  Standard 
Oil  group  may  be  mentioned  briefly,  however. 
As  early  as  1898  their  interest  in  the  Western 
Union  Telegraph  Company  began  to  develop. 


67 


pose.  At  any  rate,  opposition  to  it  led  to  a  dissolution  of  the 
syndicate  earlier  than  had  been  expected  (November,  1903,). 
For  an  account  of  bond  conversion  and  litigation,  cf.  Meade, 
The  United  States  Steel  Corporation  Bond  Conversion,  Quar- 
terly Journal  of  Economics,  Vol.  XVIII,  p.  22;  also  Commercial 
and  Financial  Chronicle,  November  21,  1903;  Moody's  Mamial 
of  Corporation  Securities,  1904',  pp.  1613,  1634;  Ripley,  2'he 
Later  History  of  the  Steel  Corporation  Bond  Conversion,  Quar- 
terly Journal  of  Economics,  Vol.  XIX,  p.  316. 

6TRoswell  G.   Rolston,  president  of  the  Farmers*  Loan  and 
Trust  Company,  affiliated  with  Standard  Oil,  and  likewise  a  "Na- 


GROUP    FORTUNES.  135 

thus  bringing  them  into  contact  with  another  im- 
portant group  of  financiers,  the  Goulds.  In  1898 
Standard  Oil  men  launched  the  Amalgamated 
Copper  Company,  in  which  Morgan  interests 
were  likewise  represented.^^  The  death  of  Ros- 
well  P.  Flower  (May,  1899),  who  was  promi- 
nently identified  with  the  copper  trust,  brought 
other  property  into  the  hands  of  Standard  Oil 
men,  since  they  bought  largely  of  his  stock  hold- 
ings, notably  securities  of  the  Brooklyn  Rapid 
Transit  Company,  of  which  it  is  said  they  subse- 
quently gained  control.^^  The  American  Smelt- 
ing and  Refining  Company  (1899)  was  organ- 
ized under  Standard  Oil  influence,^*^  and  some 
years  later  (1903)  entrance  was  secured  into  the 
Colorado  Fuel  and  Iron  Company,  with  which 
latter  venture  the  Gould  group  was  again  asso- 
ciated.^^ In  the  same  year  there  was  rumor  of  an 
alliance  between  the  Standard  Oil  and  the  Wid- 


tional  City"  man,  became  a  director  of  the  Western  Union  Tele- 
graph Co.  in  1897;  James  Stillman  entered  the  board  in  1898  or 
1899;  while  Henry  M.  Flagler  and  Charles  Lockhart,  both  "orig- 
inal" Standard  Oil  men,  and  E.  H.  Harriman  went  in  in  1900. 

GsFrederick  P.  Olcott  and  Robert  E.  Bacon  were  among  the 
directors. 

n^Bradsi reefs  Mav  30,  1899,  Vol.  XXVII,  p.  300";  September 
30,  1899,  Vol.  XXVli,  p.  612. 

"JoCommercial  and  Financial  Chronicle,  April  15,  1899,  Vol. 
LXVIII,  p.  668. 

■•iConcerning  the  Colorado  Fuel  and  Iron  Co.,  cf.  Bradstreet's, 
November  and  December,  1903,  June  and  December,  1903. 


136  GREAT    FORTUNES. 

ener-Ryan  parties  with  a  view  to  the  purchase  of 
the  Metropolitan  Securities  Company.  All  idea 
of  such  purchase  was  vigorously  denied  at  the 
time,  but  as  Ryan  subsequently  took  possession 
of  the  property,  the  denial  lost  somewhat  of  its 
force."^^ 

While  Standard  Oil  was  thus  engaged  in  ac- 
quiring holdings  in  the  corporations  mentioned, 
as  well  as  in  others  that  might  be  named,  the 
group  was  at  the  same  time  extending  its  great 
railway  system  by  purchase  and  by  alliance.    In 

1899  a  syndicate  composed  of  Gould,  Schiff, 
Harriman,  and  Stillman,  had  purchased  a  con- 
trolling interest  in  the  Chicago  and  Alton.'^^   In 

1900  Harriman,  Stillman,  and  Gould  combined 
to  buy  out  the  Kansas  City  Southern'^^ — a  road 
which  had  been  a  disturbing  factor  in  the  west- 
ern rate  situation. 


"f  2 Commercial  and  Financial  Chronicle,  September  5,  1903,  Vol. 
LXXVII,  p.  511. 

73John  D.  Rockefeller's  name  was  first  mentioned  in  place  of 
Stillman's  as  a  member  of  the  syndicate  (cf.  Commercial  and 
Financial  Chronicle,  February  11,  1899,  and  BradstreeVs,  Feb- 
ruary 25,  1899,).  An  investigation  of  the  Interstate  Commerce 
Commission  (New  York  City,  January  6,  1907,)  brought  out  the 
fact  that  the  Chicago  and  Alton  was  under  the  joint  control  of 
the  Chicago,  Rock  Island,  and  Pacific  Railway  and  the  Union 
Pacific,  one  road  having  charge  of  it  one  year;  the  other,  the  next. 
The  arrangement  grew  out  of  a  contract  between  Harriman  and 
Leeds,  entered  into  in  1904. 

-^^Bradstreet's,  November  3,  1900,  Vol.  XXVIII,  p.  692. 


GROUP    FORTUNES.  187 

The  facts  just  mentioned  are  important  in  that 
they  bear  witness  to  a  growing  community  of  in- 
terests between  the  Standard  Oil  and  the  Gould 
adherents.  But  the  events  of  the  next  few  months 
were  to  be  of  even  greater  significance.  In  1901 
the  Harriman-Kuhn-Loeb  syndicate,  on  behalf 
of  the  Union  Pacific,  which  was  dominated  by 
Standard  Oil,  acquired  control  of  the  Hunting- 
ton-Speyer  interests  in  the  Southern  Pacific  for 
$40,000,000  or  $50,000,000^^ — a  purchase  which 
added  greatly  to  the  power  of  the  group  in  the 
western  railroad  world.  The  same  year  was 
marked  by  the  entrance  of  Standard  Oil  into  the 
Northern  Pacific  under  the  leadership  of  Harri- 
man.''^  The  raid  which  resulted  in  their  gaining 
control  of  the  stock^^  and  securing,  as  they 
thought,  a  "say-so"  as  to  the  disposal  of  the  Chi- 


■r^Bradstreet's,  February  9,  1901,  Vol.  XXIX,  p.  84. 

76 It  is  probable  thai  Standard  Oil  men  had  an  interest  in  the 
Northern  Pacific  prior  to  this  time.  Thej  were  creditors  of  the 
road  when  it  went  into  bankruptcy  in  1893;  F.  T.  Gates,  a  repre- 
sentative of  John  D.  Rockefeller,  and  James  Stillman  were  mem- 
bers of  a  committee  to  arrange  for  a  collateral  trust  agreement  to 
extinguish  the  floating  debt.  (Cf.  Commercial  and  Financial 
Chronicle,  May  20,  1893.)  Subsequent  to  the  reorganization,  John 
D.  Rockefeller  and  James  Stillman  were  mentioned  as  members 
of  the  new  board  (ibid.,  Oct.  17,  1896).  Rockefeller's  name  did 
not  appear  thereafter,  however,  but  Stillman  continued  as  direc- 
tor, and  in  1897  Oliver  H.  Payne  also  became  a  member  of  the 
board. 

''^Commercial  and  Financial  Chronicle,  May  11,  1901,  Vol. 
LXXII,  p.  936;  October  12,  1901,  Vol.  LXXIII,  p.  783;  October 
19,  1901,  Vol.  LXXIII,  p.  843. 


138  GREAT    FORTUNES. 

cago,  Burlington  and  Quincy,  the  joint  purchase 
of  the  Great  Northern  and  the  Northern  Pacific, 
was  a  short-Hved  victory.  Morgan  and  his  alhes 
still  held  a  majority  of  the  common  stock,  which 
carried  with  it  a  provision  to  retire  the  preferred 
holdings  at  any  time  at  par.  This  they  threat- 
ened to  do,  and  the  result  was  a  compromise — 
the  formation  of  the  Northern  Securities  Com- 
pany, November,  1901,  in  which  all  three  inter- 
ests involved — Standard  Oil,  Morgan,  and  Hill 
— were  represented. 

It  was  in  1901,  too,  that  George  Gould  ac- 
quired control  of  the  Denver  and  Rio  Grande 
and  the  Rio  Grande  and  Western.^ ^  The  next 
year  he  purchased  the  West  Virginia  Central 
and  the  Western  Maryland,^^  while  shortly  there- 
after it  was  noised  abroad  that  Standard  Oil  had 
acquired  large  holdings  in  a  Gould  road,  the 
Missouri  Pacific,^®  and  that  the  two  interests 
were  working  in  harmony.^^ 


-Railway  Age,  May  IT,  1901,  Vol.  XXXI,  p.  531. 

i^Bradstreet's,  July  12,  1902,  Vol.  XXX,  p.  436. 

»olbid.,  September  13,  1902,  p.  578.  The  appearance  on  the 
directorate  of  the  Missouri  Pacific  of  E.  P.  Prentice,  John  D. 
Rockefeller's  son-in-law,  F.  T.  Gates,  and  John  D.  Rockefeller, 
Jr.,  would  tend  to  verify  reports  as  to  stock  purchases.  Cf. 
Poor's  Manual  of  Railroads. 

siBradstreet's,  September  13,  1902,  Vol.  XXX,  p.  578.  A 
statement  was  likewise  made  with  reference  to  another  road  as 
follows:  "St.  Paul,  as  is  well  known,  is  dominated  by  Standard 
OU." 


GROUP    FORTUNES.  139 

As  early  as  1900  it  had  been  rumored  that 
Standard  Oil  men  had  entered  the  territory  of 
the  New  York  Central,  the  Vanderbilt  strong- 
hold. During  1904  their  interests  were  marked- 
ly increased,  wliile  the  relations  between  the 
Union  Pacific  and  the  New  York  Central  came 
to  be  regarded  as  especially  close.  Furthermore, 
Standard  Oil  and  Vanderbilt  representatives 
were  operating  in  joint  control  of  the  Delaware, 
Lackawanna,  and  Western, ^^  and  it  may  fairly 
be  said  that  all  the  available  evidence  would  in- 
dicate that  there  was  a  very  substantial  identity 
of  interests  between  the  groups  in  question. 

In  February,  1905,  the  Union  Pacific  secured 
a  representation  in  the  Atchison,  Topeka  and 
Santa  Fe^^ — practically  annexed  it,  in  fact,  and 
thus  added  materially  to  the  mileage  of  the  so- 
called  Harriman  system  of  railroads.  There  is 
no  doubt  that  Standard  Oil  was  back  of  a  notable 
and  very  recent  victory  won  by  Mr.  Harriman, 
who  led  the  fight  against  the  president  of  the 
Illinois  Central,  whom  he  succeeded  in  deposing, 
thereby  demonstrating  the  power  which  he  and 

8  2Cf.  Commercial  and  Financial  Chronicle,  February  24,  1894, 
Vol.  LVIII,  p.  345;  cf.  also  Moody's  Manual  of  Corporation 
Securities,  1904,  for  list  of  directors. 

S3ln  the  persons  of  H.  H.  Rogers  and  H.  C.  Frick.  It  has 
been  recently  divulged  that  the  Oregon  Short  Line  bought  $10,- 
000,000  of  the  preferred  stock  of  the  Santa  Fe,  subsequent  to 
July  1,  1906. 


J. 


140  GREAT    FORTUNES. 

his  backers  could  exert  in  controlling  the  policy 
of  the  road.^* 

The  conclusion  that  must  be  reached  in  any 
case  after  even  a  superficial  review  of  the  facts, 
jis  that  the  financial  interests  in  control  of  the 
great  railroad  systems  of  the  country  have  be- 
come connected  in  one  way  or  another  in  almost 
inextricable  fashion.  Furthermore,  it  looks  as 
if  the  Harriman  (Standard  Oil)  and  the  Morgan 
groups  are  coming  to  hold  first  place  among 
these  various  interests,  and  indications  are  not 
lacking  to  support  the  belief  that  the  Standard 
Oil  group  may  one  day  come  to  occupy  the  posi- 
tion of  chief  control.  At  any  rate,  its  aggressive 
policy  has  thus  far  been  exceedingly  successful, 
and  the  wealth  and  power  of  its  chief  members 
have  grown  with  surprising  rapidity.  To  men- 
tion the  most  notable  of  their  achievements,  they 
have,  within  the  space  of  a  few  years,  acquired 
control  of  the  Huntington  properties,  allied 
themselves  to  some  extent  with  the  Goulds,®^  se- 
cured a  portion  of  the  Vanderbilt  holdings,  en- 

84ln  a  hearing  before  the  Interstate  Commerce  Commission 
(New  York,  January,  1907,)  it  was  learned  that  the  Oregon  Short 
Line,  part  of  the  Harriman  system,  owned  securities  of  the  Illi- 
nois Central  to  the  amount  of  $28,123,100,  which  had  been 
acquired  since  July  1,  1906.  The  same  road  held  $39,540,600  of 
the  stock  of  the  Baltimore  and  Ohio,  also  acquired  since  July, 
1906. 


GROUP    FORTUNES.  141 

croached  upon  the  Morgan-Hill  territory,  and 
made  their  way  into  other  roads  less  closely  iden- 
tified with  particular  groups. 

Moreover,  it  may  be  well  to  state  that,  as  the 
Standard  Oil  group  extended  its  investment  ac- 
tivities and  came  into  closer  contact  with  other 
groups,  the  National  City  Bank  began  to  con- 
tract new  alliances,  to  admit  representatives  of 
outside  interests  to  its  directorate,  and  to  pur- 
chase control  of  other  banks,  until  today  it  stands 
at  the  head  of  one  of  the  most  powerful  financial 
organizations  in  the  country.  Nor  has  the  gi^owth 
of  this  aggregation  ceased,  for  each  year  the  Na- 
tional City  banks  are  becoming  more  closely  allied 
with  that  other  important  chain  of  institutions, 
the  so-called  Morgan  banks.  The  practically 
endless  series  of  interrelations  that  have  thus  been 
brought  about  points  strongly  in  the  direction  of 
a  complete  unification  of  control  of  these  finan- 
cial institutions,  to  be  concentrated  in  the  hands 
of  that  group  of  financiers,  who  shall  eventually 
come  to  dominate  the  general  investment  field. 
As  approach  is  made  toward  this  final  stage  of 
development,  it  becomes  more  and  more  difficult 


85Since  George  J.  Gould  decided  to  build  the  Western  Pacific, 
his  relations  with  Harriman  are  apparently  not  so  close  as  for- 
merly. Cf.  hearing,  January,  1907,  Interstate  Commerce  Com- 
mission, New  York  City. 


142  GREAT    FORTUNES. 

adequately  to  estimate  the  fortune  of  any  single 
member  of  a  group.  The  amount  of  his  holdings 
is  conditioned  by  the  power  of  the  group,  and 
that  power  expresses  itself  through  group  action, 
the  acquisitive  potentialities  of  such  action  be- 
ing impossible  of  measurement. 


CHAPTER  V. 

PERSONAL  AND  NON-PERSONAL 

FACTORS   INVOLVED   IN 

GAIN    GETTING. 

T^VEN  superficial  studies  of  the  business 
career  of  John  Jacob  Astor  emphasize  its 
supposedly  dualistic  nature  and  distinguish  be- 
tween the  apparently  sharply  defined  aspects  of 
gain  getting  for  which  it  stands.  In  fact,  Astor's 
trading  operations  are  frequently  discussed  as  if 
they  had  not  the  slightest  theoretical  connection 
mth  his  activities  as  an  investor  in  land.  It  is 
the  latter  method  of  fortune  getting  which  is  gen- 
erally considered  to  afford  exclusive  opportunity 
for  the  appearance  of  an  ''unearned  increment^!! 
that  is,  gain  of  some  sort  which  cannot  be  attrib- 
uted to  the  personal  effort  or  personal  ability  of 
the  beneficiary.    Under  the  influence  of  this  mis- 


jjonception,  an  attempt  is  made  to  distinguish  be- 
tween the  profits  arising  from  trade,  and  the 
gains  growing  out  of  land  investments,  on  the 
ground  that,  in  the  one  case,  the  size  of  the  re- 
turns is  conditioned  by  the  degree  of  personal  ac- 
tivity, whereas,  in  the  other  case,  no  appreciable 
amount  of  individual  effort  or  ability  is  involved. 
Daniel  Webster,  for  instance,  in  an  address  to 
the  jury,  when  arguing  against  Astor's  claim 


144  GREAT   FORTUNES. 

to  lands  in  Putnam  county,  implied  some  such 
distinction  between  commercial  exertions  and 
land  investments,  in  connection  with  the  moral 
judgment  that  he  passed  upon  Astor.  True,  his 
argument  was  impassioned  and  polemical  in  tone. 
Moreover,  he  was  referring  to  a  particular  case 
of  land  investment,  characterized  by  certain  pe- 
culiar features.  But  the  antithesis  that  he  sug- 
gests is  nevertheless  significant — the  more  so  that 
it  was  designed  to  appeal  to  popular  prejudices. 
His  plea  was  that  Astor  had  obtained  possession 
of  the  land  in  dispute,  "not  as  he  did  that  vast 
wealth  than  which  no  one  envies  him  less  than  I 
do — not  by  fair  and  honest  exertions  in  commer- 
cial enterprise,  but  by  speculation,  by  purchasing 
up  the  forlorn  hope  of  the  heirs  of  a  family  driv- 
en from  the  country  by  a  bill  of  attainder."^ 
Whether  designedly  or  not,  Webster  has  here 
made  a  distinction  between  "commercial  exer- 
tions" and  "speculation"  in  land,  implying,  in  the 
one  case,  that  the  source  of  returns  is  personal 
activity,  in  the  other,  that  the  gains  are  to  be  at- 
tributed in  the  main  to  a  non-personal  factor — 
that  is,  to  some  cause  operative  to  produce  gain, 
irrespective  of  individual  effort  or  of  individual 
ability. 

iJackson  vs.  Carver,  U.  S.  Circuit  Court,  Southern  District  of 
New  York. 


FACTORS  IN  GAIN  GETTING.    145 

It  is  on  the  basis  of  this  broad  division  into  per- 
sonal  and  non-personal  factors  conditioning  gain, 
that  an  analysis  will  be  made,  not  only  of  the  re- 
turns that  came  to  Astor  from  trade  and  from 
land  investments,  but  likewise  of  the  incomes 
from  various  sources  enjoyed  by  Gould,  and  by 
members  of  the  "Standard  Oil"  and  "Morgan" 
groups  of  investors.  Further,  it  will  be  shown 
that,  given  such  a  principle  of  differentiation,  no 
rigid  line  of  demarcation  can  be  drawn  between 
these  various  methods  of  gain  getting.  This  prop- 
osition once  estabhshed,  the  classification  will  re- 
ceive a  more  extensive  application,  with  intent  to 
determine  the  nature  of  the  gains  that  arise  in  the 
course  of  the  general  process  of  fortune  accumu- 
lation. Finally,  the  significance  of  the  analysis 
for  purposes  of  present-day  criticism  will  be  dis-  y 
cussed.^ 

The  Astor  fortune  alone  furnishes  strong  evi- 
dence to  support  the  assertion  that  no  one  method 
of  gain  getting  represents  the  exclusive  operation 
either  of  personal  or  of  non-personal  factors. 
Even  in  the  case  of  Astor's  most  active  trading 

2Tbe  method  of  treatment  proposed  leaves  strictly  on  one  side 
all  question  concerning  the  social  services  rendered  by  owners  of 
large  fortmies,  since  that  is  a  problem  properly  and  logically 
separate  from  the  present  task.  In  fact,  it  is  a  subject  the 
nature  of  whose  treatment  depends  largely  upon  the  sort  of 
theoretical  analysis  which  has  preceded  it.  It  will,  therefore,  he 
reserved  for  later  discussion  in  this  paper. 


146  GREAT    FORTUNES. 

ventures,  did  there  not  arise  an  "unearned"^  in- 
crement, plainly  attributable  to  certain  non-per- 
sonal factors  ?  The  profits  arising  from  his  traffic 
with  the  Indians  were  due  in  large  part  to  the  su- 
perlative ignorance  of  that  non-commercial  peo- 
ple. Or,  if  this  statement  be  objected  to,  as 
reflecting  somewhat  invidiously  upon  Astor,  it 
must  at  any  rate  be  conceded  that  such  profits 
were  the  result  of  radically  different  standards  of 
value.  ThelTchedules  of  exchange  relating  to  the 

Trade  make  ludicrous  the  assumption^^ 
competitive"  state  in  which  reward  is  considered 
to  be  in  proportion  to  individual  effort  or  ability. 

^t  is  true  that  in  the  prosecution  of  the  Indian 
trade  a  high  degree  of  personal  skill  and  of 
mental  dexterity  was  requisite.  This  fact  helped 
unduly  to  emphasize  the  importance  of  the  indi- 
vidual. His  pecuniary  success  was  popularly 
supposed  to  have  its  source  in  personal  activity 
alone.  Consequently,  the  attendant  non-personal 
factors  were  relegated  to  a  position  of  obscurity, 
although,  as  has  been  shown,  a  closer  examination 
reveals  their  overwhelming  importance.^ 

3The  term  "unearned"  is  retained  simply  to  show  the  variety 
of  phenomena  to  which  it  may  be  applied  if  its  use  be  logically 
extended.     It  is  taken  to  connote  absence  of  personal  activity. 

mother  illustrations  might  be  drawn  from  the  China  trade. 
The  peculiar  tastes  of  the  Chinese  were  a  source  of  exceptional 
gain  to  the  Yankee  shipper,  especially  when  the  latter  could 
obtain  the  commodities  desired  by  the  former  at  relatively  low 
prices,  as  in  the  case  of  furs. 


FACTORS  IN  GAIN  GETTING.   147 

On  the  other  hand,  land  investments  frequent- 
ly afford  striking  examples  of  value  accretion, 
associated  with  only  a  minimum  of  personal  ac- 
tivity. Hence  they  are  thought  of  almost  exclu- 
sively when  the  subject  of  the  "unearned  incre- 
ment" is  discussed.  Yet,  even  in  such  cases  there 
must  have  been  some  sort  of  initial  activity  put 
forth  by  the  owner  of  the  land.  For  example, 
Astor  needed  to  exercise  unusual  discrimination 
in  order  to  decide  in  what  direction  the  city  of 
New  York  was  likely  to  grow,  and  to  estimate  the 
possibilities  of  that  development.  Granted  that, 
it  will  be  asked,  could  any  appreciable  proportion 
of  the  $18,000,000  worth  of  real  estate  owned  by 
him  at  the  time  of  his  death,  be  held  to  represent 
a  return  due  to  his  personal  efficiency?  Given  the 
existing  system  of  business  relations,  the  whole 
amount  of  the  property  was  legally  and  legiti- 
mately due  him.  But  can  it,  in  logic,  be  said  that  0 
an  explanation  should  assign  a  fixed  percentage  [ 
of  the  accumulation  to  the  category  of  returns 
due  to  efficiency?  The  fact  that  Astor  was 
possessed  of  greater  business  astuteness  than 
the  average  man  helped  to  explain  why  he,  rather 
than  someone  else,  came  into  possession  of  this 
landed  property.  Superior  personal  ability 
is  in  general  exceedingly  potent  in  aiding  the  _ 
individual  to  acquire  property  as  against  other 


148  GREAT    FORTUNES. 

individuals.  But  personal  ability  does  not  for 
that  reason  adequately  explain  the  "how  much" 
of  those  acquisitions.^  A  determination  of  ques- 
tions of  ownership  is  not  a  determination  of  ques- 
tions concerning  the  amount  of  gain  arising  as 
the  result  of  ownership. 

Too  often,  the  importance  of  the  existing  sys- 
tem of  social  institutions  and  legal  relations,  as 
conditioning  the  process  of  gain  getting,  is  un- 
derrated. Distributive  questions  are  apt  to  be 
discussed  in  a  manner  to  indicate  that  the  distrib- 
utive process  takes  place  in  some  sublimated 
sphere  that  knows  no  law  but  a  "natural"  law. 
The  emphasis  is  thrown  on  questions  of  skill,  of 
productive  efficiency.  The  formally  efficient  con- 
ditioning factors  are  not  felt  to  disturb  to  any 
great  extent  these  more  "vital"  causes  making 
for  gain.  But  it  cannot  be  repeated  too  often 
that  the  institution  of  private  property  presup- 
poses a  whole  system  of  formal  legal  arrange- 
ments, within  which  the  individual  must  operate 
in  the  process  of  gain  getting.  The  exceptional- 
ly or  even  ordinarily  clever  man  may  succeed  as 
against  his  fellows  in  acquiring  title  to  a  certain 
amount  of  property.     Very  possibly   (although 


cGiven  a  start,  the  influence  of  acquired  wealth  upon  further 
accumulation  has  also  a  bearing  upon  the  present  discussion. 
TMs  point  will  be  taken  up  later. 


FACTORS  IN  GAIN  GETTING.    149 

not  invariably)  he  is  enabled  to  do  this  as  a  result 
of  industry  and  a  disposition  to  save,  combined 
with  a  certain  keenness  of  judgment  in  making 
investments.  But  does  it  follow  that  the  amount 
of  property  owned  by  such  a  man  measures  the 
degree  of  ability  possessed  by  him,  as  compared 
with  some  other  man?  By  no  means.  Property 
is  an  acquisitive  category;  it  is  a  case  of  mine 
against  thine,  and,  conceivably,  ever  so  slight  a 
difference  in  personal  equipment  may  give  one 
man  ownership  of  a  piece  of  property  as  against 
a  rival. 

But,  admitting  an  exceptional  degree  of  per- 
sonal ability,  suppose  that  an  individual  gets  pos- 
session of  a  property  sure  to  bring  in  large  re- 
turns in  the  future  without  further  effort  on  his 
part.  Are  those  future  returns  all  to  be  accred- 
ited to  the  more  or  less  of  superior  ability  that  en- 
abled him  to  acquire  possession  of  the  property 
in  the  first  place?  To  take  the  most  obvious  illus- 
tration, assume  that  he  has  purchased  an  acre  of 
land  for  $100;  twenty  years  later  the  city  has 
surrounded  this  lot,  and  he  sells  it  for  $100,000, 
In  this  case,  it  has  been  taken  for  granted  that 
the  owner  had  the  foresight  to  predicate  some 
such  result  (although  it  may  very  well  have  been 
an  accident),  and  that  this  foresight  was  the  effi- 
cient cause  of  the  original  purchase.     Even  so, 


150  GREAT    FORTUNES. 

do  the  gains  derivable  from  such  a  purchase  in 
any  way  measure  the  personal  ability  of  the  own- 
er?   He  might,  perhaps,  have  sold  his  land  for 
$50,000  or  for  $200,000,  and  it  would  not  have 
been  possible  to  say  that  he  had  displayed  great- 
er or  less  acumen  in  making  his  original  pur- 
^  chase.    Social  changes, jgartlypredicable,  but  for 
the  rnost  part  incalculable,  have  brought  about 
the  increased  gain.    The  factor  of  personal  abil- 
.     "Tty  has,  in  such  cases,  merely  determined  who  is 
^    lo  be  the  recipient  of  those  gains  under  the  exist- 
ing laws  of  property.^. 

Hence,  it  is  easy  to  see  why,  in  the  case  of  a 
landed  fortune  such  as  that  of  John  Jacob  Astor, 
the  overweening  part  played  by  social  factors  in 
increasing  the  value  of  Astor's  land  holdings, 
frequently  caused  the  element  of  personal  ability 
conditioning  the  returns  derived  from  such  in- 
vestments to  be  wholly  ignored.  To  the  uncrit- 
ical mind,  such  a  form  of  gain  appeared 
to  be  entirely  the  result  of  social  conditions 
and  legal  arrangements.  It  therefore  acquired 
the  highly  derogatory  appellation  "unearned," 
because  of  the  persistence  of  the  idea  that  reward 
"generally"  is,  and  hence  always  should  be,  in 
proportion  to  personal  effort  or  personal  abiHty. 
Jay  Gould,  as  well  as  John  Jacob  Astor,  won  a 
large  part  of  his  fortune  as  the  result  of  purely 


W 


FACTORS  IN  GAIN  GETTING.   151 

speculative  operations.  Indeed,  no  great  fortune 
either  before  or  since  his  day  seems  to  have  been 
more  consistently  derived  from  what,  in  the  larger 
sense  of  the  term,  was  gambling — a  game,  too, 
in  which  Gould,  generally  speaking,  held  the  bag. 
Hence,  it  is  easy  to  show  that  the  resultant  gains 
were  in  many  instances  almost  wholly  the  result 
of  the  peculiar  circumstances  conditioning  his 
activity,  and  were  in  that  sense  and  to  that  extent 
"unearned." 

No  one  questions  that  Gould  had  a  peculiarly 
sinister  type  of  ability,  that  he  was  an  excessively 
shrewd  as  well  as  a  calmly  resolute  man. 
His  cleverness  enabled  him  to  manipulate  si tua^, 
tions,  so  as  to  derive  from  them  the  utmost  indi- 
vidual profit.  But,  even  when  these  returns  were 
legally  acquired,  did  they  afford  even  an  approxi- 
mate measure  of  his  personal  ability,  of  the  ac- 
curacy of  his  judgment?  By  no  manner  of 
means.  He  was  generally  in  a  position  where  he 
took  no  chances;  he  stood  to  win  in  the  very  na- 
ture of  things.  His  stock  speculations  in  the 
Erie,  for  instance,  were  certainly  not  due  to  any 
foresight  on  his  part,  as  to  whether  the  stock  was 
likely  to  rise  or  to  fall.  It  generally  rose  or  fell 
as  he  dictated;  and  he  was  enabled  to  dictate 
its  price  fluctuations,  and  to  profit  thereby, 
because  of  the  unlimited  power  he  exercised  over 


A 


152  GREAT    FORTUNES. 

the  policy  of  the  Erie,  by  reason  of  the  fiduciary 
position  he  occupied. 

Further,  the  conditions  prevailing  throughout 
the  country  during  the  period  immediately  suc- 
ceeding the  Civil  War  were  eminently  favorable 
to  advancing  the  fortunes  of  any  cool-headed 
speculator  in  stocks,  even  when  he  did  not  have 
the  treasury  of  a  great  railroad  at  his  disposal. 
A  demoralized,  speculative  fever  had  taken  pos- 
session of  the  country;  the  large  issues  of  paper 
money,  giving  rise  to  the  premium  on  gold,  the 
excessive  expenditures  of  the  government  made 
necessary  by  the  war — all  had  contributed  to  ag- 
gravate the  situation.  There  were  lambs  to  fleece 
in  plenty,  who  were  just  as  ignorant  of  the  pos- 
sibilities of  the  speculative  market  as  were  the 
Indians  of  the  fur-trader's  wiles.  The  advantage 
enjoyed  by  a  speculator  who  had  "inside  informa- 
tion," because  he  occupied  a  (so-called)  position 
of  trust  within  the  councils  of  a  corporation, 
made  a  contest  with  him  as  unequal  as  any  trade 
between  Indian  and  white  man. 
I  But  it  was  not  only  as  a  speculator  that  Gould 
enjoyed  gains  largely  conditioned  by  non-per- 
j  sonal  factors.  As  an  investor  in  great  public  ser- 
-vice  corporations — notably  the  Manhattan  Ele- 
I  vated  Railway  Company  and  the  Western  UraoH 
Telegraph  Company — he  profited  in  proportion 


FACTORS  IN  GAIN  GETTING.   153 

as  these  companies  profited   by  ^e^  gro]^h_in  _ 
weaitfirand~power  of  the  communities  which  they 
served. 

To  take  another  illustration,  it  would  be  im- 
possible to  deny  the  great  ability  as  worker  and 
organizer  displayed  by  John  D.  Rockefeller, 
while  actively  connected  with  the  refining  busi- 
ness. Is  it,  therefore,  possible  to  say  that  the 
many  miUions  which  he  derived  from  his  connec- 
tion with  the  Standard  Oil  Company  furnish  a 
measure  of  that  ability?  Granting  that  a  certain  ^ 
sort  of  ability  is  the  sine  qua  non  of  pecuniary 
success,  that  ability  is  not  alone  adequate  to  ex- 
plain  the  degree  of  success.  There  are  all  sorts  \ 
of  non-personal  factors  to  be  considered,  as,  for 
instance,  in  the  case  of  the  Standard  Oil  Com- 
pany, the  gains  resulting  from  the  favors  extend- 
ed by  the  railroads  during  an  era  of  fierce  com- 
petitive strife.  The  attitude  of  the  railroads  aid- 
ed greatly  in  building  up  the  monopoly  power 
of  the  company  with  all  its  attendant  advantages. 
Further,  with  the  increase  in  size  of  this  great 
industrial  concern,  it  came  to  approximate  more 
closely  to  the  position  of  a  public  service  corpora- 
tion, such  as  a  railway  or  a  telegraph  company, 
and  to  profit  more  largely,  therefore,  from  the 
growth  in  wealth  and  power  of  the  country  at 
large. 


154  GREAT    FORTUNES. 

_  The  testimony  wliich  has  been  offered  is,  no 
doubt,  sufficiently  varied  to  establish  the  fact  of 
_the  joint  operation  under  all  conditions  of  both 
.Vgersonal  and  non-j^ersonal  factors.  This  propo- 
sition once  established,  it  can  therefore  be  stated 
as  a  corollary  not  requiring  demonstration  that, 
between  those  methods  of  gain  getting  in  which 
the  personal  element  looms  large,  and  those  in 
which  it  has  become  a  negligible  factor,  there 
must  exist  all  conceivable  varieties  of  combina- 
tion of  the  two  factors.  Hence,  there  must  every- 
where be  found  "unearned  increments,"  differing 
widely  in  amount,  with  variations  in  the  relative 
importance  of  the  attendant  non-personal  fac- 
tors. 

The  discussion,  as  thus  far  given,  has  not  been 
directly  concerned  with  the  manner  of  growth  of 
these  great  fortunes;  the  treatment  has,  in  fact, 
been  analytical  rather  than  developmental.  It 
is,  however,  a  matter  of  much  importance  to  de- 
termine whether  the  gains,  which  make  possible 
further  accumulations,  are  largely  conditioned  by 
personal  ability,  or  whether  non-personal  con- 
siderations attain  constantly  increasing  prom- 
inence in  aiding  the  process  of  growth.  Could  it 
be  shown  that  the  general  tendency  is  in  the  lat- 
ter direction,  some  light  would  be  thrown  upon 
the  causes  of  the  rancor  manifested  against  men 


FACTORS  IN  GAIN  GETTING.    155 

of  great  fortune — a  rancor  that,  given  the  strong- 
ly individuahstic  commercial  preconceptions  of 
the  community,  is  otherwise  hardly  capable  of  a 
logical  explanation.  But,  before  arriving  at  any 
decision  upon  this  point,  it  will  be  necessary  to 
discuss  the  nature  of  those  factors  which  become 
increasingly  operative  with  the  increase  in  size 
of  a  fortune. 


In  the  case  of  very  large  fortunes,  a  continu- 
ance of  growth  sometimes  seems  so  inevitable  as 
almost  to  partake  of  the  nature  of  a  mechanical 
process.  Of  course,  there  is  necessarily  implied 
some  sort  of  action  on  the  part  of  the  owners  of 
such  fortunes.  This  may,  however,  take  the  neg- 
ative form  of  simply  refraining  from  consuming 
the  whole  of  the  returns  to  which  they  are  en- 
titled, and  it  may  entail  little  or  none  of  the  so- 
called  abstinence  supposed  always  to  attach  to 
the  investment  process.  In  fact,  the  incomes  of 
exceptionally  wealthy  men  are  frequently  so 
large  that  there  remains  a  surplus,  even  after 
fancied  needs  of  expenditure  have  been  satisfied. 
Moreover,  many  American  millionaires,  such  as 
Astor,  Gould,  and  Rockefeller,  who  began  life 
in  povertyT  are  men  of  relatively  simple  tastes, 
who  have  no  desire  to  expend  more  than  a  small 
"proportion  of  the  incomes  due  them.  Conse- 
"quently  there  ensues  a  bewildering  process  of  in- 
u 


156  GREAT    FORTUNES. 

vestment  and  reinvestment,^  which,  assuming  a 
continuance  of  or3m  gives  rise  to 

the  phenomenon  of  unending  growth.^ 

In  later  years,  the  corporate  system  has  added 
greatly  to  tlie  ease  with  which  investment  inter- 
ests have  been  extended.  By  enabling  an  indi- 
vidual to  exercise  a  power  much  in  excess  of  that 
which  he  could  wield  if  forced  to  make  outright 
purchases  in  order  to  secure  control  of  a  com- 
pany, it  has  opened  up  to  him  many  more  ave- 
nues of  gain.  No  operations  so  extensive  as  those 
of  present-day  groups  of  investors  would  have 
been  possible  under  a  non-corporate  system  in 
which  "abstract"  rights  of  property  in  the  form 
of  stocks  and  bonds  were  unknown.^    Moreover, 

6The  part  played  by  the  individual  in  determining  the  direc- 
tion to  be  taken  by  these  investments  is  considered  in  another 
connection. 

7ln  discussing  any  great  fortune,  it  should  be  remembered 
that  pride  in  its  mere  size  is  an  energizing  principle  of  consid- 
erable force  in  the  direction  of  activities  looking  toward  further 
accumulations.  The  fortune  comes  to  be  regarded  as  an  institu- 
tional fact,  which  should  not  suffer  change,  because  of  births, 
deaths,  marriages,  or  other  extraneous  happenings.  In  conse- 
quence, there  exists  a  disposition  to  transmit  it  intact  to  that 
descendant  who  gives  best  evidence  of  ability  to  conserve  and  to 
augment  it.  The  heads  of  the  Astor,  Vanderbilt,  and  Gould 
families,  all  owning  numerous  descendants,  have  seen  fit  to  select 
one  or  two  of  each  generation  as  the  guardians  of  the  family 
fortunes,  which  they  in  their  turn  will  be  expected  to  transmit 
practically  intact  and  greatly  augmented  to  succeeding  genera- 
tions. 

8 For  a  discussion  of  the  importance  of  "abstract  property"  in 
the  making  of  large  fortunes  cf.  G.  P.  Watkins,  The  Growth  of 
Large  Fortunes.  Publication  of  the  American  Economic  Associa- 
tion, November,  1907. 


FACTORS  IN  GAIN  GETTING.    157 

for  speculative  operations  such  as  those  of  Jay 
Gould  and  many  of  the  later  men  belonging  to 
the  Standard  Oil  and  Morgan  groups,  the  ex- 
istence of  "abstract  property"  is  of  primary  im- 
portance. For  Morgan,  of  course,  as  dealer  in 
securities,  and  reorganizer  of  stock  and  bond- 
issuing  companies,  this  '^abstract  property"  is 
indispensable. 

But  for  the  gains  derived  during  the  process 
of  growth  of  a  great  fortune  from  a  simple  exten- 
sion of  investment  interests,  the  corporate  sys- 
tem with  its  attendant  feature  of  abstract,  pa- 
per ( ?)  property  is  not  absolutely  essential,  how- 
ever greatly  it  may  facilitate  the  ease  with  which 
investments  can  be  extended.  Undoubtedly,  the 
existence  of  rights  of  ownership  in  the  form  of 
negotiable  securities  (becoming  daily  larger Tn 
volume,  as  the  corporate  system  extends  into  new 
fields  of  industry)  is  of  great  and  growing  im- 
portance for  the  development  of  present-day  for- 
tune— especially  in  so  far  as  those  fortunes  come 
to  be  derived  more  and  more  from  immense  pub- 
lic-service corporations.  But  "abstract  prop- 
erty" cannot  be  invoked  as  the  sole  explanation 
of  the  gains  coming  to  men  of  great  wealth.  It 
is,  after  all,  but  one  of  the  conditions  growing  out 
of  social-legal  arrangements,  which  aid  the  pro- 
cess of  accumulation.     Indeed,  it  should  be  re- 


158  GREAT    FORTUNES. 

membered  that  the  fortune  of  John  Jacob  Astor 
was  acquired  long  before  the  days  of  the  Stock 
Exchange,  although  it  is  not  to  be  denied  that  his 
real  estate  holdings  offer  a  close  analogy  to  the 
stock  and  bond  holdings  of  these  latter  days.^ 

It  has  been  shown  that  the  non-personal  factor 
of  mere  size  largely  conditions  the  ease  with 
which  an  individual  may  extend  liis  investments 
and  thus  augment  his  fortune.  It  also  enables 
him  to  take  advantage  of  iimumerable  oppor- 
tunities to  invest  under  peculiarly  favorable  cir- 
cumstances, and  thereby  to  make  still  further 
additions  to  the  sum  of  his  "unearned  incre- 
ments." One  of  the  facts  that  stand  out  most 
prominently  to  a  person  who  is  making  a  devel- 
opmental study  of  large  fortunes  is  the  increase 


in  the  amount  and  extent  of  investments,  which 
takes  place  just  at  those  times  when  tlie  com- 
munity at  large  is  suffering  from  acute  financial 
depression.  Thus,  during  the  War  of  1812  and 
iKe  panic  of  1837,  Astor  increased  his  holdings  of 
real  estate  enormously,  as  the  result  of  numerous 
mortgage  foreclosures.  Similarly,  the  panic  of 
1893  gave  Morgan  unrivalled  opportunities  to 
obtain  interests  in  numerous  bankrupt  roads,  as 
the  price  of  undertaking    their    reorganization. 

9Cf.  G.  p.  Watkins,  The  Growth  of  Large  Fortunes^  pp.  43,  88. 


FACTORS  IN  GAIN  GETTING.    159 

Needless  to  say,  the  circumstances  of  the  time 
enabled  him  to  dictate  the  terms  of  settlement 
in  a  manner  highly  advantageous  to  himself.  It 
is  from  this  period  of  financial  demoralization 
that  Morgan  and  his  adherents  date  their  origin 
as  a  powerful  group  of  investors.  About  the 
same  time,  "Standard  Oil"  men^^  were  enabled 
to  secure  many  valuable  properties  at  low  prices, 
notably  the  rich  mines  in  the  Lake  Superior  iron 
ore  regions  obtained  by  Mr.  Rockefeller. 

But  apart  from  any  widespread  social  disorder, 
there  are  numerous  opportunities  afforded  a 
wealthy  man  to  profit  by  individual  cases  of 
financial  embarrassment  or  of  superimposedjier. 
cessity.  Witness  the  case  of  Astor,  who  pur- 
chased the  posts  of  the  Northwest  Company, 
after  a  law  had  been  passed  which  made  it  illegal 
for  the  British  organization  to  carry  on  business 
in  this  country.  His  purchase  of  the  rights  of 
the  heirs  to  the  Morris  estate  is  likewise  an  illus- 
tration in  point.  Gould,  for  his  part,  profited 
upon  many  occasions  through  buying  control  of 
bankrupt  companies  at  absurdly  low  prices,  and 
then  forcing  other  corporations  to  purchase  them 
by  means  of  threats.    For  example,  he  terrorized 


loA  group  of  investors  can  of  course  force  sales  even  more 
effectively  than  the  single  rich  man,  and  they  can  take  even 
prompter  advantage  of  ill  times. 


160  GREAT    FORTUNES. 

the  Union  Pacific  management  into  taking  over 
the  Kansas  Pacific  and  the  Denver  Pacific  at  in- 
flated vahiations,  and  he  so  injured  the  business 
of  the  Western  Union  Telegraph  Company  that 
it  was  compelled  to  come  to  terms  with  the  At- 
lantic and  Pacific,  and  with  the  American  Union 
telegraph  companies,  to  the  great  gain  of  the  two 
last-named  concerns.  The  advantage  which  Car- 
negie (backed,  probably,  by  Rockefeller,)  took  of 
the  demoralization  existing  within  the  steel  trade 
in  1899-1900,  to  force  a  purchase  of  his  interests, 
adds  another  to  the  long  list  of  possible  illustra- 
tions. As  a  matter  of  fact,  anyone  can  recall  oc- 
casions upon  which  he  has  heard  lesser  business 
men  lamenting  their  inability  to  take  advantage 
of  the  exceptional  opportunities  for  investment 
afforded  by  "hard  times"  or  by  ill  luck.  But,  as 
it  happens,  they  are  opportunities  enjoyed  for  the 
most  part  by  the  man  whose  income  greatly  ex- 
ceeds his  current  expenditures,  and  who  is  eager- 
ly seeking  new  avenues  of  investment.  He  it  is 
who  is  the  chief  recipient  of  the  benefits  accruing 
to  a  purchaser  in  cases  of  forced  sale. 

The  particular  direction  taken  by  successive  in- 
xestrnents  during  the  period  of  fortune  accumu- 
lation is  likewise  a  matter  of  jnuch  importance^ 
Ajudicious  extension  of  investment  interests 
may  result  in  the  creation  or  i^rengthening  of  qer:;^ 


FACTORS  IN  GAIN  GETTING.   161 

tain  monopolistic  (non-personal)  factors,  which 
will  prove  a  source  of  exceptjpnal^gain-Jtb-S^^ 
^dividual.    If  Astor  had  carried  on  the  fur  trade 
as  did  so  many  others,  without  attempting  to  de- 
velop transportation  and  shipping  facilities,  the 
North  American  Fur  Company  could  never  have 
attained  the  strongly  monopolistic  position  that 
it  occupied  in  the  middle  west.^^    As  it  was,  the 
monopoly  once  established,  the  chances  of  loss- 
were  reduced  to  a  minimum,  and  full  advantage 
I     could  be  taken  of  the  favorable  conditions jnher-™ 
entjn  the  trade. 

So  in  the  case  of  the  Standard  Oil  Company, 
its  monopolistic  powers  were  strengthened,  and 
big  gains  were  derived  from  the  development  of 
the  pipe-line  system,  in  connection  with  the  re- 
fining business.  Indeed,  as  investment  interests 
^in  general  become_more  and  more  ramified,  there 
ensues  a  diminution  of  the  chances  of  individual"' 
loss,  consequently,  a  greater  possibility  that  non- '" 

personal  factors  will  operate  to  individual  ad- 

_^vantage.     Hence  the  logic  of  that  most  highly 
developed  type  of  financiering,  which  combines 


lilt  is  not  meant  to  minimize  the  ability  displayed  by  Astor 
in  recognizing  the  advantages  to  be  derived  from  developing 
facilities  for  transport.  But  the  question  at  this  point  is,  given 
that  development,  what  other  factors  entered  to  condition  the 
size  of  the  returns.  The  matter  of  personal  ability  will  be  later 
discussed. 


J 


162  GREAT    FORTUNES. 

interests  so  varied  in  character,  that  it  sometimes 
seems  as  if  it  embraced  the  entire  field  of  trade 
and  transportation.  The^^reater  the  extent  of 
such  heterogeneous  investments,  the  less  likely  it 
is  that  monopoly  gains  within  one  field  will  be 
curtailed  by  conditions  operative  within  other 
lines  of  actiyijy.  The  whole  range  of  interests 
can,  m  short,  be  managed  as  a  unit  to  give  the 
largest  possible  individual  returns. 

As  for  the  possibilities  of  speculative  gain  that 
arise  with  such  an  extension  of  holdings  as  has 
been  effected  during  the  last  few  years,  they  are 
incalculable.  If  Gould  could  send  the  stocks  of 
the  Erie  and  of  several  other  roads  up  or  down, 
as  his  purpose  required,  by  reason  of  the  control 
he  exercised  within  a  relatively  limited  field, 
what  may  not  the  "Standard  Oil"  or  the  "Mor- 
gan" group  accomplish?  They  can  send  gas, 
electric,  steel,  street  railway,  and  numerous  other 
stocks  up  or  down,  as  the  case  may  be.  A  simple 
pronouncement  of  policy  may  be  all  that  is  neces- 
sary to  bring  about  a  startling  change  in  stock 
quotations.  The  resultant  gains  can  hardly  be 
attributed,  therefore,  to  the  foresight  and  skill  in 
taking  risks  of  the  men  who  bring  about  these 
fluctuations.  It  is  the  absence  of  risk  due  to  the 
sheer  extent  of  their  interests  which  enables  them 
to  profit,  with  the  exercise  of  a  mimmum  amount 


FACTORS  IN  GAIN  GETTING.    163 

ofjpruderxce.  To  quote  Henry  Clews,  when 
'speaking  of  one  of  these  groups  of  financiers: 
"Their  resources  are  so  vast  that  they  need  only 
to  concentrate  on  any  given  property  in  order  to 
do  with  it  what  they  please.  .  .  .  There  is  an 
utter  absence  of  chancejfliat  is  terrible  to  contem- 
_plate.  Tliis  combination  controls  Wall  Street^ 
almost  absolutely.  With  such  power  and  facil- 
ity, it  is  easily  conceivable  that  these  men  must 
make  enormous  gains  on  either  side  of  the  mar- 
ket."^2 

With  the  growth  iji^ize^  of  a^ 
genefalIy"occurs  a  change  in  the  character  of  the/ 
personal  activity  of  its  owner.  In  fact,  there  is 
evidence  of  a  continuous  development  of  func- 
tional specialization  on  the  part  of  the  individual, 
which  could  not  profitably  have  taken  place  at  an 
earlier  period.  The  fortune  of  John  Jacob  Astor 
serves  to  illustrate  the  process  very  distinctly. 
Astor  was  first  seen  wearily  tramping  the  coun- 
try in  search  of  furs,  trading  with  the  Indians, 
negotiating  with  the  merchants — in  short,  en- 
gaged in  a  business  which  involved  a  high  degree 
of  genuinely  exhausting  labor.  Moreover,  every 
detail  of  the  existing  crude  organization  required 
his  personal  attention,  while  he  had  also  to  look 

isQuoted  by  Fetter  in  his  Principles  of  Economics,  p.  378. 


164  GREAT   FORTUNES. 

sharply  to  the  financial  matters  of  income  and 
outgo.  Eventually,  the  purely  physical  labors 
connected  with  the  trade  devolved  upon  subordi- 
nates. Astor  assumed  the  position  of  head  man- 
ager. He  directed  the  men  in  the  field,  decided 
what  territory  should  be  covered,  what  goods 
should  be  furnished,  and  what  prices  should  be 
offered.  Not  only  did  he  thus  order  the  general 
policy  of  his  undertakings,  but  he  financed  them 
as  well.  Later,  he  transferred  the  more  imme- 
diate control  of  the  trade  to  trusted  heads  of  de- 
partments, reserving  to  himself  a  certain  large 
supervision,  with  a  view  to  determining  the  na- 
ture and  extent  of  his  expenditures.  Even  Jay 
Gould  can  show  a  similar  advance  from  the  hard- 
ships endured  as  clerk  in  a  small  store,  as  sur- 
veyor, and  as  civil  engineer,  to  the  physically  less 
arduous  position  of  manager  of  a  tanning  busi- 
ness. Then  came  his  graduation  into  the  spec- 
ulative field.  Henceforth,  his  activities  were  no 
longer  directed  to  details  of  management.  He 
was  concerned  with  them  only  in  so  far  as  they  af- 
fected the  financial  operations  with  which  his  time 
was  fully  occupied.  The  same  stages  of  develop- 
ment were  passed  through  by  John  D.  Rocke- 
feller, and  by  any  number  of  the  wealthy  finan- 
ciers of  the  present  day,  saving  always  those  who 
started  life  already  possessed  of  wealth. 


FACTORS  IN  GAIN  GETTING.    165 

Indeed,  it  is  inevitable  that  there  should  take 
place  these  changes  in  the  forms  of  personal  ac- 
tivity of  men  of  great  wealth.  Even  the  most 
energetic  person,  possessed  of  twenty-five,  fifty, 
or  a  hundred  millions  of  dollars,  finds  his  time 
fully  employed  in  looking  after  the  financial  de- 
tails of  management,  in  deciding  when  to  invest 
in  a  new  enterprise,  when  to  withdraw  from  an 
old  one,  when  to  authorize  fresh  expenditures, 
when  to  retrench  upon  previous  ones.  Apart  from 
the  general  supervision  which  such  pecuniary  in- 
terests entail,  there  is  likely  to  be  no  opportunity  \/ 
afforded  him  for  any  immediate  tasks  of  manage- 
ment and  control — such  tasks,  for  instance,  as  re- 
quire expert  technical  knowledge,  or  ability  to 
organize  separate  productive  processes,  or  facil- 
ity in  effecting  purchases  and  sales  of  materials. 
There  is,  of  course,  even  less  reason  to  expect 
that  any  sort  of  manual  labor  or  physical  effort 
will  be  put  forth  by  the  man  of  great  wealth,  al- 
though, if  he  be  a  self-made  millionaire,  he  may 
have  labored  arduously,  while  his  fortune  was  in 
the  making. 

From  what  has  been  said,  it  becomes  evident 
that  it  would  be  quite  useless  to  affirm  or  to  deny 
that  the  personal  element  which  figures  in  the 
process  of  fortune  accumulation,  becomes  abso- 
lutely either  greater  or  less  with  the  growth  in 


V 


166  GREAT    FORTUNES. 

size  of  the  fortune.  As  a  matter  of  fact,  the  forms 
of  activity  are  different  in  kind,  hence,  non-com- 
mensurable as  regards  degree.  Taking  the  per- 
sonal element  for  granted,  therefore,  all  that  can 
be  ventured  is  the  assertion  that  the  non-personal 
factors  conditioning  the  process  of  fortune  accu- 
mulation attain  an  ever-increasing  influence  in 
affecting  the  size  of  the  individual's  gain. 

It  is  an  imperfect  recognition  of  this  fact, 
which  is  translated  into  the  unreflective  criticism 
that  the  rich  man  cannot  have  "earned"  the  for- 
tune he  has  acquired.  The  implication  is  that  he 
cannot  possibly  display  an  amount  of  individual 
activity  or  of  personal  ability  as  much  greater  as 
his  reward  is  larger  than  that  of  other  men.  From 
what  source,  then,  it  is  asked,  can  he  have  de- 
rived such  unusual  returns?  It  is  not  seen  that 
they  are  due  to  all  sorts  of  non-personal  consid- 
erations, wliich  must  always  be  reckoned  with, 
but  which  happen  to  have  operated  with  peculiar 
force  under  the  given  conditions.  Hence  there  is 
i  /  a  disposition  to  attribute  all  such  exceptional  re- 
turns to  undesirable  institutions  or  to  question- 
able practices  of  some  sort. 

Even  production  on  a  large  scale  is  frequently 
condemned  as  a  thing  evil  in  itself  and  not  to  be 
tolerated,  simply  because  it  usually  presupposes 
a  considerable  degree  of  monopolistic  (non-per- 


FACTORS  IN  GAIN  GETTING.    167 

sonal)  gain.  Further,  large-scale  production  is 
sometimes  viewed  with  disfavor  because,  in  so  far 
as  it  has  taken  on  a  corporate  form,  it  has  facili- 
tated an  extension  of  investment  interests 
through  stock  and  bond  purchases,  and  a  conse- 
quent control  of  the  market  situation,  which  en- 
ables certain  men  to  obtain  speculative  profits  al- 
most without  risk  of  loss,  and,  it  may  be,  with  a 
minimum  of  effort.  But  to  condemn  large  scale 
production  itself,  solely  for  such  reasons,  is  to 
confuse  the  purely  productive  facts  of  industry 
with  problems  connected  with  the  social  aspects 
of  distribution.  There  is,  at  any  rate,  no  similar 
confusion  in  the  minds  of  those  who  question  the 
right  to  the  "unearned  increment"  arising  from 
private  ownership  of  land.  They,  at  least,  pro- 
pose to  effect  distributive  changes  (namely,  the 
abolition  of  private  property  in  land),  as  a  rem- 
edy for  what  they  regard  as  distributive  evils, 
since  they  cannot,  of  course,  inveigh  against  the 
existence  of  the  land  itself. 

The  same  failure  to  appreciate  the  actual  facts 
of  fortune-building,  the  same  desire  to  find  "ab- 
normal" causes  of  growth  has  led  to  bitter  per- 
sonal abuse  of  men  of  large  fortune.  Why? 
Their  business  morality  is  just  as  high,  and  fre- 
quently, no  doubt,  a  little  higher  than  that  of  the 
ordinary  small  town  trader  or  money  lender 


168  GREAT    FORTUNES. 

(which  is  not  saying  that  it  in  any  way  conforms 
to  the  standard  which  an  extra-commercial  and 
aroused  public  opinion  would  force  upon  them) . 
Why,  it  may  be  asked,  have  the  petty  shifts,  the 
ruthless  bargaining,  the  unrelenting  rivalries  of 
small  producers  and  tradesmen  been  portrayed 
without  the  slightest  personal  animus  having  been 
manifested  by  the  portrayer?  Are  the  resultant 
gains  any  less  abnormal  than  the  supposed  or  ac- 
tual pilferings  of  the  rich?  Yet  the  parallelism 
is  rarely  insisted  upon.  Why?  Because  to  the 
public  at  large,  the  gains  of  the  lesser  business 
men  do  not  seem  so  out  of  proportion  to  their 
individual  activity  as  to  require  explanation  on 
the  ground  of  illegitimacy.  Consequently,  there 
is  seldom  any  attempt  to  scrutinize  their  meth- 
ods very  closely,  although  their  gains  are  as  sure- 
ly leavened  at  times  by  fraud  and  sharp  practice, 
as  are  those  of  the  wealthiest  men  in  the  land. 
But  when  it  comes  to  a  consideration  of  the  great 
fortunes,  there  is  a  sudden  change  of  attitude. 
When  it  is  seen  that  men  such  as  Astor,  Gould, 
Rockefeller,  Morgan,  and  others,  may,  by  judi- 
c;ious  purchase  and  sale  of  certain  rights  of  own- 
ership, add  millions  to  the  value  of  their  proper- 
ties, criticism  at  once  becomes  rife.  However 
great  the  ability  displayed  in  effecting  such  trans- 
actions, it  is  felt  to  have  no  connection  with  the 


FACTORS  IN  GAIN  GETTING.   169 

size  of  the  return,  and  the  cry  of  "unearned"  is 
at  once  raised.  Then  an  explanation  of  the  un- 
usual gains  of  these  men  is  sought  for  in  their 
acts,  rather  than  in  the  institutions  and  the  situ- 
ations which  condition  their  activity.  Their  en- 
tire careers  are  gone  over  with  an  eye  to  search- 
ing out  iniquity.  If  it  be  discovered  (and  it  usu- 
ally can  be,^^  since  few  business  transactions  sur- 
vive the  test  of  non-commercial  standards  of 
conduct)  it  is  then  hastily  inferred  that  dishon- 
esty affords  in  large  part  an  explanation  for  ex- 
cessive wealth  accumulations.  In  point  of  fact, 
the  sharp  practices  of  the  average  business  man 
are  just  as  dishonest  and  probably  as  widespread. 
Hence  any  sweeping  condemnation  of  the  man 
of  great  fortune  on  such  ground  involves  both 
large  and  small.  The  result  is  an  unconscious  in- 
dictment of  our  whole  system  of  business  rela- 
tions. Whether  justly  or  not  is  irrelevant  to  the 
present  inquiry. 

laNotablv  in  the  case  of  Gould. 


CHAPTER  VI. 

THE    SOCIAL    SERVICE    RENDERED 

BY  OWNERS   OF   GREAT 

FORTUNES. 

A  DISCUSSION  of  the  personal  and  non- 
personal  factors  involved  in  the  acquiring 
of  large  fortunes  leaves  on  one  side  all  specula- 
tion concerning  the  possible  social  services  that 
may  be  rendered  wliile  those  fortunes  are  being 
accumulated.  That  there  exists  a  concept  of  so- 
cial service  is  indubitable,  but  it  is  questionable 
whether  its  content  is  the  same  for  any  two  mem- 
bers of  the  same  social  group.  For  instance,  a 
big  industrial  or  trading  corporation  ministers 
to  certain  professed  needs  of  large  groups  of 
people.  A  system  of  railroads  stands  as  tangible 
evidence  of  sei-vice  being  rendered  the  commun- 
ity. But  is  there  any  way  of  measuring  the  posi- 
tive social  value  of  those  sei^vices  ?  For  that  mat- 
ter, do  people  agree  as  to  their  exact  nature?  Is 
it  not  necessary,  moreover,  to  take  into  account 
the  social  costs  incurred  as  the  price  of  obtaining 
the  positive  services?  Again,  could  more  than  a 
rude  and  uncertain  approximation  be  had? 

How,  for  instance,  judge  of  the  degree  of  so- 
cial service  rendered  by  the  North  American  Fur 


SOCIAL    SERVICE.  171 

Company?  Some  persons  would  extol  the  bene- 
fits arising  from  the  introduction  into  the  world 
markets  of  the  skins  so  highly  desired  by  civilized 
communities.  Others  would  merely  see  the  de- 
moralizing effects  of  the  trade  upon  the  Indians, 
and  the  unnecessarily  rapid  destruction  of  the 
fur-bearing  animals  of  the  continent.  To  take 
another  illustration,  even  the  worst  managed 
railways,  such,  for  example,  as  the  Erie  under 
the  direction  of  Gould,  serve  the  communities 
through  which  they  run.  But  who  can  estimate 
the  disorders  and  injuries  which  may  at  the  same 
time  result  from  improper  or  dishonest  conduct 
of  the  affairs  of  such  roads?  Simply  to  suggest 
a  third  problem,  how  equate  the  services  and  dis- 
services to  society  resulting  from  the  existence  of 
the  Standard  Oil  Company?  Does  not  the  deci- 
sion as  to  whether  or  not  a  "positive  good"  has 
resulted  depend  in  such  cases  more  upon  the  tem- 
perament of  the  judge  than  upon  the  evidence? 

The  most  that  can  be  expected  is  a  fairly  gen- 
eral judgment  that  in  specific  cases  the  advan- 
tages derived  by  society  from  the  existence  of  a 
particular  institution  have  outweighed  the  at- 
tendant disadvantages.  But  does  such  an  uncer- 
tain concept  furnish  a  basis  for  a  theory  of  re- 
ward proportioned  to  the  degree  of  social  ser- 
vice?    Suppose  that  an  exact  quantitative  esti- 

12 


172  GREAT    FORTUNES. 

mate  of  a  non-computable  social  service  could 
be  formed  and  could  be  attributed  to  some  partic- 
ular business  undertaking  in  which  a  fortune  has 
been  invested.  Even  then,  it  would  not  be  pos- 
sible to  say  what  part  of  the  estimated  social  ser- 
vice ought  to  be  accredited  to  the  owner  of  the 
wealth  so  invested.  If,  as  has  been  contended, 
non-personal  factors  play  an  important  part  in 
the  making  of  great  fortunes,  then  a  part  of  the 
benefit  derived  by  the  community  at  large  from 
the  existence  of  a  particular  fortune  would  have 
to  be  attributed  to  those  non-personal  factors, 
rather  than  to  the  ability  of  the  owner  of  the  for- 
tune.^ 

It  is  sometimes  said  that  a  social  service  grows 
out  of  the  existence  of  a  fortune,  in  so  far  as  that 
fortune  represents  capital  employed  in  hiring  la- 
borers. Once  more,  how  estimate  the  extent  of 
that  service?  If,  for  instance,  the  laborers  are 
employed  under  conditions  inimical  to  life  and 
health,  or  even  if  they  are  no  better  off  than  they 
were  before,  it  is  difficult  to  decide  whether  such 
employment  can  in  any  way  be  figured  as  a  gain 
to  them  or  to  the  community.  But  granting  fa- 
vorable conditions  of  work  and  a  resultant  gain, 
does  the  size  of  the  fortune  furnish  even  the 

lAs  has  been  shown,  there  is  no  possibility  of  a  sharp  delimita- 
tion of  the  spheres  of  action  of  personal  and  non-personal  factors. 


SOCIAL    SERVICE.  173 

roughest  indication  of  the  degree  of  social  service 
growing  out  of  the  employment  of  labor?  May 
not  the  small  fortune,  judged  from  such  a  point 
of  view,  be  of  much  greater  relative  significance 
than  the  large  fortune,  since  the  latter  usually 
represents  a  proportionately  greater  investment 
in  purely  acquisitive  aids  to  gain-getting,  such 
as  franchises  and  special  privileges  of  various 
sorts?  What  can  be  said  for  a  great  fortune 
made  by  land-speculations?  By  stock-gambling 
operations? 

Not  only  is  there  no  way  of  demonstrating  any 
measurable  connection  between  reward  and  social 
service,  but  it  can  be  shown  that  the  aggrandize- 
ment of  the  individual  may  take  place  without 
appreciable  effect  upon  society,  or,  it  may  be,  to 
its  positive  injury.  So  it  is  in  the  case  of  land  in- 
vestments. The  buyer  of  real  estate  may  shift 
possession  from  one  lot  to  another  with  great 
profit  to  himself,  although  he  may  not  have 
sought  during  his  term  of  possession  to  improve 
in  the  least  the  condition  of  such  properties.  It 
is  an  open  question  whether  John  Jacob  Astor 
hindered  the  development  of  the  community  rath- 
er more  than  he  advanced  it  by  his  purchases  of 
real  estate.  To  be  sure,  he  made  improvements 
upon  certain  lots  either  directly  or  through  the 
agency  of  his  tenants.    But  it  is  doubtful  wheth- 


174  GREAT    FORTUNES. 

er  the  hotels  and  other  buildings  erected  might 
not  have  been  placed  there  even  sooner  by  others ; 
whether,  given  a  change  of  ownership,  land  left 
unimproved  might  not  have  been  ministering  to 
definite  public  needs.  In  general,  the  case  for 
withholding  building  lots  from  use  is  by  no  means 
clear.  Because  a  piece  of  land  may  some  day 
come  into  the  heart  of  a  business  centre  and  be 
used  as  a  site  for  a  large  office  building,  need  by 
no  means  prevent  its  being  employed  to  subserve 
certain  present-day  needs  of  the  community.  In- 
deed, so  far  as  those  present-day  needs  are  legiti- 
mate, the  owner  who  permits  his  land  to  remain 
unimproved  performs  a  distinct  social  disser- 
vice.^ 

Moreover,  take  the  case  of  the  financier,  who 
has  only  a  secondary  interest  in  the  actual  work- 
ing arrangements  of  the  organizations  in  which 
he  has  invested  (and  those  working  arrange- 
ments are,  after  all,  the  important  thing  for  so- 
ciety) .    He  is  interested  in  them  only  in  so  far 


2The  possession  of  land  may  mean  something  more  than  a 
simple,  passive  holding  of  it,  for  the  sake  of  its  future  increase  in 
value.  Its  owner  may  put  it  to  some  use  which  subserves  a  definite 
public  need,  or  he  may  perform  a  social  service  by  withholding  it 
from  use  for  a  certain  period.  In  the  case  of  farm,  forest,  and 
mineral  lands,  those  owners  who  refrain  from  utilizing  their  hold- 
ings frequently  accomplish  a  great  public  benefit  by  retarding 
the  tendency  to  a  too  hasty  development  of  natural  resources. 
But  here  again,  how  establish  a  connection  between  the  gain  that 
mav  result  to  the  individual  and  the  value  of  the  social  service? 


SOCIAL    SERVICE.  175 

as  they  affect  the  value  of  his  share  holdings,  and 
it  may  conceivably  be  to  his  advantage  so  to  de- 
moralize the  mechanical  organization  as  tempor- 
arily to  depress  the  value  of  those  shares.  But 
apart  from  such  questionable  tactics,  he  may 
profit  largely  by  judiciously  shifting  his  invest- 
ments from  one  field  to  another,  without  appre- 
ciable effect  upon  the  industrial  situation.  He 
merely  takes  advantage  of  existing  conditions 
which  make  for  gain. 

The  evidence  afforded  by  the  fortune  of  Jay^ 
Gould  excellently  supports  the  contention  that 
the  amount  of  a  man's  gain  bears  no  necessary  re-    . 
lation  to  the  degree  of  social  service  rendered, 
and,  further,  that  such  gain  may  even  grow  aty 
the  expense  of  the  community.^     When  Gould 
left  the  Erie  Railroad,  he  was  richer  by  millions, 
but  the  Erie  itself  was  one  degree  worse  off  than 
when  he  allied  himself  with  it.    In  so  far  as  his 
gains  were  the  result  of  illegitimate  practice,  this 
statement  has  no  great  significance  for  economic 
theory ;  but  in  so  far  as  they  were  obtained  within 


3"It  would  be  very  difficult  to  show  that  the  nation  as  a  whole 
is  a  dollar  richer  by  the  existence  of  Jay  Gould,  while  he  himself 
has  become  the  richer  by  an  amount  estimated  as  aforesaid  from 
the  expansion  of  the  city  and  the  nation.  He  has  simply 
absorbed  what  would  have  been  made  in  spite  of  him,  and  what, 
if  he  had  not  interfered,  would  have  been  possessed  by  somebody 
else."  From  an  editorial  in  the  New  York  Times,  December  3, 
1892. 


176  GREAT    FORTUNES. 

the  limits  of  legal  morality,  such  an  assertion  is  of 
deep  import.  It  means  that  the  operator  in 
stocks  or  other  securities,  by  taking  advantage 
of  price  fluctuations,  may  profit  without  the 
slightest  reference  to  the  material,  technological, 
social  facts  of  industry,  or,  it  may  be,  as  the  re- 
sult of  socially  injurious  changes. 

In  his  conduct  of  the  Union  Pacific,  Gould  cer- 
tainly effected  some  actual  improvements.  For 
one  thing,  he  extended  the  branch  line  system — 
an  admitted  good.  But  did  he  do  it  as  econom- 
ically, as  prudently  as  might  be?  In  point  of 
fact,  he  seriously  crippled  the  main  line  by  some 
of  the  purchases  made  in  his  own  interests.  How- 
ever, it  would  probably  be  fair  to  say  that  in  this 
respect,  the  advantages  outweighed  the  disadvan- 
tages. And  so  it  goes  with  all  the  roads  with 
which  he  was  connected.  No  doubt  certain  tangi- 
ble results  were  obtained,  certain  improvements 
made,  but  the  question  remains  as  to  whether, 
under  other  auspices,  those  improvements  might 
not  have  been  a  great  deal  more  numerous,  and 
effected  with  a  much  greater  degree  of  economy. 
An  answer  to  these  queries  may  be  conjectured, 
and  it  is  not  favorable  to  Gould.  The  fact  that 
in  nearly  every  instance  these  roads  were  bank- 
rupt when  he  took  them,  were  rehabilitated  by 
him,  saddled  with  vastly  increased  obligations. 


SOCIAL    SERVICE.  177 

and  then  allowed  to  lapse  into  bankruptcy  once 
a^ain — all  this  does  not  favor  the  supposition  of 
economical  and  socially  desirable  management. 

Again,  take  the  case  of  the  American  Union 
Telegraph  Co.,  organized  solely  to  levy  blackmail 
Oil  the  Western  Union.  Gould  accomplished  his 
purpose  of  securing  a  combination  of  the  two  or- 
ganizations, but  the  advantages  which  he  as  an 
individual  derived  from  his  entry  into  the  West- 
ern Union  were  obtained  at  a  great  social  cost. 
Four  hundred  and  twenty-nine  offices  of  the 
American  Union  were  closed  following  the  con- 
solidation ;  there  had  been  a  useless  paralleling  of 
lines;  Gould's  victory  spelt  waste.  No  doubt, 
once  in  control  of  the  Western  Union,  his  man- 
agement was  just  as  good  as  that  of  his  prede- 
cessors, since,  happily,  he  believed  in  the  Western 
Union  as  an  investment  concern,  and  was,  there- 
fore, interested  to  maintain  a  high  degree  of 
working  efficiency. 

What  of  the  profits  accruing  to  the  "Standard 
Oil"  and  "Morgan"  men  as  the  result  of  the  ex- 
tensive ramifications  and  interrelations  of  their 
property  holdings?  Do  they  always  represent  a 
social  service?  Or  is  it  likely  that  technological 
or  other  considerations  making  for  increased  so- 
cial efficiency  have  been  subordinated  to  a  desire 
to  secure  the  gains  incident  to  a  concentration  of 


178  GREAT    FORTUNES. 

control  over  a  wide  field  of  trade  and  industry? 
An  illustration  may  be  drawn  from  the  case  of 
the  United  States  Steel  Corporation.  All  its 
constituent  companies  represented  large  combi- 
nations of  capital,  and  were  more  or  less  industri- 
ally complete  units  in  themselves.  Viewed  wholly 
from  the  industrial  standpoint,  therefore,  the 
question  might  well  have  arisen  as  to  whether  a 
further  unification  might  not  prove  so  unwieldy 
as  to  offset  any  resultant  economies.  But  to  put 
all  such  considerations  aside,  the  main  purpose 
of  the  union  was  accomplished  in  that  it  prevent- 
ed a  war  of  the  large  financial  interests,  bringing 
together  as  it  did  the  Morgan,  Moore,  Rocke- 
feller, Carnegie,  and  Gates  holdings.  The  North- 
ern Securities  Company  is  another  illuminating 
example  of  a  corporation  organized  purely  and 
simply  to  secure  a  unification  of  the  investment 
interests  concerned,  and  to  enjoy  the  profits  in- 
cident to  harmonious  action. 

The  earlier  combinations,  such  as  those  in  steel, 
sugar,  and  petroleum,  had  come  about  in  part,  at 
least,  as  the  result  of  industrial  exigencies.  At 
any  rate,  they  certainly  made  for  increased  fa- 
cilities of  production  within  the  limits  of  the  in- 
dustries in  question.  But  it  is  difficult  to  see  how 
certain  present-day  combinations  can  have  any 
effect  upon  methods,  processes,  and  economies  of 


SOCIAL    SERVICE.  179 

production,  although  such  combinations  may  be 
highly  profitable  to  the  individuals  in  control  of 
them  by  extending  the  scope  of  their  influence, 
and  adding  to  the  size  of  their  monopolistic  gains. 

It  has  been  shown  that  there  is  no  way  of  es-\^ 
tablishing  a  determinate  relation  between  reward    f  ^ 
and  personal  ability,  or  reward  and  social  servicCv^ 
What,  then,  can  be  said  of  the  attempts  of  cer- 
tain economists  to  combine  the  two  ideas  and  to 
prove  that  "profits  are  the  share  or  income  of  the 
entrepreneur  for  his  skill  in  directing  industry 
and  in  assuming  the  risks"  and  that  "despite  the   sj 
complex  influences  they  are  determined  by  his 
contribution  to  industry,  essentially    as    is    the 
value  of  any  skilled  service.""^      Is  this  any  more 
than  a  dogmatic  assertion,  which  is  frequently 

4Are  the  rewards  of  the  successful  enterpriser  greater  than  he 
deserves?  How  shall  it  be  judged  what  he  deserves?  The  answer 
is  in  the  form  of  a  question,  "Could  society  have  the  service  with- 
out the  re\vard?"  Society  may  be  thought  of  as  hiring  the  servi<?es 
of  the  efficient  business  man  at  the  lowest  price.  Does  it  wish  the 
services  of  Cornelius  Vanderbilt  in  organizing  a  great  system  of 
railroads,  of  Andrew  Carnegie,  of  Pierpont  Morgan?  What  can 
it  get  them  for?  It  must  appeal  not  only  to  their  love  of  money 
but  to  their  love  of  power.  Large  services  and  large  results  can 
be  bought  only  with  large  rewards." 

Fetter,  Principles  of  Economics,  p.  377. 

Would  it  be  correct  to  infer  from  this  that  if  the  rewards  of 
these  men  had  been  less,  they  would  have  done  less?  Isn't  it  mis- 
leading to  speak  of  "hiring"  the  services  of  these  men,  just  as  if 
the  size  of  their  returns  were  predestined,  and  could  find  expres- 
sion in  a  stable  contractual  relation?  Even  suppose  it  were 
necessary  to  guarantee  them  a  fixed  amount,  would  it  be  very 
illuminating  to  say  that  they  deserve  what  they  get  because  they 
insist  upon  having  it? 


180  GREAT    FORTUNES. 

contradicted  by  the  facts.  Professor  Fetter  him- 
self, as  a  preliminary  to  the  statements  just  quot- 
ed, discusses  "anti-social  or  pseudo"  profits, 
"chance"  profits,  and  profits  "due  to  a  union  of 
chance  and  choice."^  He  even  says  that  "it  still 
sometimes  appears  better  to  be  born  lucky  than 
rich."  Yet  he  concludes  that  "continuing  profits 
arise  from  the  continued  exercise  of  superior 
judgment."  Are,  then,  these  chance  elements  so 
transient,  unimportant,  and  "abnormal,"  that  a 
valid  theory  of  distribution  can  disregard  them? 
What,  moreover,  is  the  significance  of  the  fol- 
lowing statement,  which,  curiously  enough,  ap- 
pears under  the  general  caption  that  "incomes 
from  legitimate  enterprise  and  speculation  corre- 
spond roughly  to  social  service"?  Professor  Fet- 
ter admits  that  "in  many  ways  fortunes  appear  to 
grow  without  social  service,  and  sometimes  with 
positive  social  harm."  Russell  Sage,  the  noted 
capitalist  (who  should  know  something  of  Wall 
Street),  in  speaking  of  the  greatest  of  American 
corporations,  said:  "They  dominate  wherever  they 
choose  to  go.  They  can  make  and  unmake  any 
property,  no  matter  how  vast.  They  can  almost 
compel  any  man  to  sell  out  anything,  at  any 
price."    Henry  Clews,  the  well-known  New  York 

»Fetter,  Principles  of  Economics,  pp.  399,  290. 


SOCIAL    SERVICE.  181 

banker,  said  of  a  certain  group  of  financiers: 
"Their  resources  are  so  vast  that  they  need  only  to 
concentrate  on  any  given  property  in  order  to  do 
with  it  what  they  please.  .  .  .  There  is  an 
utter  absence  of  chance  that  is  terrible  to  contem- 
plate. This  combination  controls  Wall  Street 
almost  absolutely.  With  such  power  and  facili- 
ties it  is  easily  conceivable  that  these  men  must 
make  enormous  sums  on  either  side  of  the  mar- 
ket."® Again,  can  a  theory  dismiss  as  an  excep- 
tion so  sahent  a  fact  of  our  industrial  develop- 
ment? Isn't  the  whole  movement  toward  an  ex- 
tension of  investment  interests  designed  to  mini- 
mize and  to  neutralize  risk?  It  really  seems  as 
if  risks  of  loss  diminished  with  the  growth  in  size 
of  a  man's  income.  Far  from  profits  being  due 
to  superior  skill  in  taking  risks,  profits  usually  in- 
crease as  in  the  course  of  the  general  process  of 
fortune  development,  there  are  fewer  risks  left 
to  be  assumed. 

Professor  Carver,  in  his  book  on  the  "Distribu- 
tion of  Wealth,"  has  a  category  of  profits,  which 
he  does  not  impute  to  the  productivity  of  land,  la- 
bor, or  capital,  but  he  gets  it  by  confessing  that 
his  theory  does  not  always  hold  in  practice.  The 
amounts  paid  for  the  hire  of  the  several  agents  of 


•Fetter,  Principles  of  Economics,  pp.  377,  378. 


182  GREAT    FORTUNES. 

production  are  only  "approximately"  equal  to 
their  marginal  products.  "Of  course,  the  owners 
of  these  factors  of  production  will  not  knowingly 
take  less  than  their  marginal  products,  because 
that  is  what  they  are  really  worth.  .  .  .  But  it 
is  never  known  precisely  what  their  marginal 
products  are  at  any  given  time."^  Profit  is,  then, 
resolved  into  the  reward  of  risk-taking  (which  in 
Professor  Carver's  theory  belongs  logically  under 
the  head  of  wages)  and  the  reward  of  superior 
bargaining.  However,  the  share  resulting  from 
the  business  man's  superior  bargaining  power 
produces  nothing.  In  fact,  a  reward  thus  obtained 
has  about  it  a  suspicion  of  illegitimacy.  It  is  a 
species  of  robbery,  which,  under  more  nearly  ideal 
conditions,  tends  to  disappear.^  Thus  Professor 
Carver  is  practically  left  with  personal  ability  de- 
termining the  value  of  a  man's  contribution  to  so- 
ciety (his  social  sei^ice) ,  and  hence  the  amount  of 
his  reward.  But,  he  says,  the  amount  which  he  can 
add  to  the  social  product  is,  on  the  principle  of 


^Carver,  The  Distribution  of  Wealth,  Chap.  VII,  p.  260. 

8 J.  B.  Clark,  Distribution  of  Wealth,  Chap.  XIX,  p.  290,  says: 
"Profit  is  the  universal  lure  that  makes  the  competition  work  and 
the  ultimate  goal  of  the  whole  movement  is  a  no  profit  state." 
In  other  words,  there  is  no  room  for  a  discussion  of  exceptional 
returns  due  to  luck  or  chance  in  Professor  Clark's  productivity 
theory  of  distribution.  Such  returns  must  be  reckoned  transient 
or  illegitimate,  whenever  they  cannot  be  forced  into  the  category 
of  "regular"  rewards  assignable  to  the  productivity  of  specific 
factors  or  agents. 


SOCIAL    SERVICE.  183 

marginal  productivity,  decreased  as  the  number 
of  business  managers  increases.  That  is,  the 
man's  actual  ability  is  unchanged,  his  material 
contribution  is  unaltered,  but  his  marginal  (val- 
ue) productivity,  hence  the  size  of  his  reward,  is 
less.  What,  in  reality,  is  this  statement  but  a 
confession  that  rewards  are  not  made  solely  on 
the  "absolute"  grounds  of  personal  ability  and 
social  sei'vice,  but  are  conditioned  by  various  non- 
calculable  circumstances? 

Many  economists  who  attempt  to  explain  per- 
sonal gain  on  the  basis  of  ability,  of  social  ser- 
vice, or  of  ability  and  social  service  in  conjunc- 
tion, either  specifically  state  or  else  strongly  im- 
ply that  their  theories  furnish  a  justification  of 
such  gains.  Suppose,  however,  that  any  one  or 
all  of  these  propositions  could  be  established. 
Wherein  would  lie  the  "justification"  of  the  ex- 
istence of  gains?  The  proof  would  have  an  eth- 
ical validity  only  in  so  far  as  it  coincided  with 
one's  metaphysical  predilections.  Assume,  for 
instance,  that  a  man's  ability  was  so  great  that 
none  could  compete  with  him,  or  that  he  per- 
formed an  incalculably  valuable  social  service. 
Would  he  be  "justified"  in  engrossing  the  earth? 
Would  society,  in  either  case,  meekly  allow  all  its 
possessions  to  remain  at  his  disposal?  Certainly 
not;  it  would  feel  under  no  metaphysical  compul- 


184  GREAT    FORTUNES. 

sion  to   permit  such   a   consummation,   and   it 
would,  if  need  were,  find  means  to  prevent  it. 

To  talk,  then,  of  justifying  the  winnings  of 
the  man  of  great  fortune  is  idle.  He  stands  or 
falls,  as  this  or  that  view  of  social  expediency  pre- 
vails. At  present,  the  general  belief  seems  to  be, 
that,  under  the  existing  economic  system,  social 
needs  are  fairly  well  met,  and  the  majority  of  the 
people  receive  a  reward  just  about  sufficient  to 
make  them  exert  their  full  powers  toward  the 
satisfaction  of  those  needs.  It  is  further  assumed 
that  this  approximation  to  the  socially  desirable 
can  only  be  secured  by  permitting  a  high  degree 
of  liberty  of  action  and  freedom  of  acquisition  to 
all  members  of  the  social  group.  If,  however, 
certain  men  or  groups  of  men,  while  operating 
within  the  existing  legal  limitations,  should  suc- 
ceed in  securing  a  large  share  of  the  property  of 
the  community  with  all  the  attendant  influence 
that  ownership  implies,  opinion  regarding  the  so- 
cially desirable  nature  of  present  economic  ar- 
rangements might  undergo  a  transformation.  If 
such  cases  became  sufficiently  numerous  and  in- 
sistent, there  might  arise  a  demand  for  regula- 
tive changes.  It  would  then  be  for  the  commun- 
ity to  decide  upon  the  necessity,  scope,  and  char- 
acter of  the  proposed  new  measures.  And  its  de- 
cision sliould  properly  be  made  on  the  broad  ba- 


SOCIAL    SERVICE.  185 

SIS  of  public  policy.  On  siicK  erround,  purely  eco- 
nomic facts  and  the  preconceptions  of  economic 
science  will  secure  recognition,  to  be  sure,  but 
only  to  the  extent  that  they  have  a  direct  bear- 
ing upon  the  wider  question  of  the  general  public 
welfare. 


^    OF   THE 

UNIVERSITY 

OF 


THIS  BOOTT 


RETURN 


MAIN  CIRCULATION 


ALL  BOOKS  ARE  SUBJECT  TO  RECALL 
RENEW  BOOKS  BY  CALLING  642-3405 


DUE  AS  STAMPED  BELOW 

SENT  ON  ILL 

JUN  3  0  1995 

lie  RPPkr*!  cv 

UNIVERSITY  OF  CALIFORNIA,  BERKELEY 
FORM  NO.  DD6                                 BERKELEY,  CA  94720 

j^ULA 


<^-M^ 


^ 


/303 
194744 


